Reliability Inc 10-Q for FY2024 Q3
Reliability Inc (RLBY)
About this 10-Q
Reliability Inc filed this 10-Q on November 14, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $6.23M
- up 16.6% from $5.34M a year earlier
- Net loss
- $66K
- compared with a net loss of $176K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
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, par value, as of September 30, 2024.
RELIABILITY INCORPORATED
Quarterly Report on Form 10-Q
As of and For the Three Months Ended September 30, 2024
INDEX
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RELIABILITY INCORPORATED AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Trade receivables, net of credit losses | ||||||||
| Other receivables | ||||||||
| Notes receivable from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other intangible assets, net | ||||||||
| Property, plant and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Factoring liability | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued payroll | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitment and contingencies (note 6) | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock, without par value, shares authorized, issued and outstanding as of September 30, 2024 and as of December 31, 2023 | ||||||||
| 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 INCORPORATED AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
| 2024 | 2023 | |||||||
| For the Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| 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 expense | ( | ) | ( | ) | ||||
| Income (loss) before income tax expense | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Consolidated net loss | $ | ( | ) | $ | ( | ) | ||
| Net income per share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Share used in per share computation: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these statements.
| 4 |
RELIABILITY INCORPORATED AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
| 2024 | 2023 | |||||||
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| 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) benefit | ( | ) | ( | ) | ||||
| Income tax (expense) benefit | ( | ) | ||||||
| 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 INCORPORATED AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2024 and 2023
(amounts in thousands, except per share data)
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Retained | Total | |||||||||||||||||
| Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Balance | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ||||||||||||||||
| Balance | $ | $ | $ | $ | ||||||||||||||||
The accompanying notes are an integral part of these statements.
| 6 |
RELIABILITY INCORPORATED AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
| 2024 | 2023 | |||||||
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| 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 receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued payroll | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| 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 | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these statements.
| 7 |
RELIABILITY INCORPORATED AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(amounts in thousands)
| Supplemental disclosures of cash flow information: | 2024 | 2023 | ||||||
| For the Nine Months Ended September 30, | ||||||||
| Supplemental disclosures of cash flow information: | 2024 | 2023 | ||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| 8 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(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 of Record and temporary Media and Information Technology (“IT”) staffing services 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 Hire, and Video and Multimedia Production, which provides script-to-screen services. 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 crews for special projects, webcasting, live events, post-production services, and production management.
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 MMG initially in 1988 and incorporated the firm under the name The Maslow Media Group Inc. in March 1992.
On November 9, 2016, Linda Maslow sold the business to Vivos Holdings, LLC (“Vivos Holdings”) owned by Dr. Naveen Doki (“Dr. Doki”) and Silvija Valleru (“Ms. Valleru”).
In 2019, Vivos Holdings collaborated on a share swap of MMG for other Vivos companies with individuals who included, but were not limited to, Dr. Doki, Shirisha Janumpally (“Mrs. Janumpally”), wife of Dr. Doki, Kalyan Pathuri (“Mr. Pathuri”) husband of Silvija Valleru, Igly Trust, and Judos Trust. These parties 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”).
As
a result of the Merger, on October 29, 2019, MMG became a wholly owned subsidiary of Reliability, and the Vivos Group (Vivos Holdings,
LLC, officially) acquired approximately
Upon
purchasing MMG and thereafter, the Vivos Group began borrowing monies from MMG starting with $
Additionally, Reliability became aware of debt obligations that included MMG as a borrower or guarantor that the Vivos Group failed to disclose to Reliability. This and 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. 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, culminating in an agreement to settle
through arbitration. On August 31, 2022, the arbitrator issued an award (the “Award”) with the Company and MMG prevailing
on their claims. The awards included citing fraud damages. Supplemental awards were subsequently issued on May 17, 2023, October 10,
2023, and finally, on October 27, 2023. Summarily, MMG was awarded the totals of all notes the Vivos Group had with MMG for its borrowings,
the contracted interest, attorneys’ fees and expenses of $
The May 17, 2023, award also appointed a rehabilitative receiver (the “Receiver”) whose primary function is to collect the contract and fraud damages, including costs, expenses, and fees provided in the awards. With respect to the receivership, the Vivos Group owners or holders of all the shares of common stock of the Company were declared not to be entitled to vote any of those shares at any annual or special meetings of the shareholders of the Company during the period of the receivership.
On October 10, 2023, the Arbitrator issued a Supplemental Award appointing the Receiver to assist the Company in collecting the awarded amounts. In the award, the Arbitrator established the powers of the Receiver.
| 9 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(amounts in thousands, except per share data)
On December 29, 2023, the Circuit Court for Montgomery County, Maryland signed orders entering all three arbitration awards as judgments in Reliability’s case against the Vivos Group. These orders became final on January 29, 2024, when the appeal period expired for the defendants. The judgments are good for 12 years and can be enrolled in other states. Reliability has collectible judgments which the Receiver is now eligible to pursue.
Per
Maryland law, the enrolling of judgements enables MMG to apply
Upon 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 September 30, 2024, the 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 condensed 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 statement 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 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, 2023.
Concentration of Credit Risk
For
the nine months ended September 30, 2024,
NOTE 2. MANAGEMENT’S PLAN
Although
the Company experienced net losses after taxes for the nine months ended September 30, 2024, and, in the years, ended December 31, 2023
and 2022 of $
| ● | Cash flow forecast showing sufficient cash and working capital 52 weeks from November 6, 2024; | |
| ● | The expected reductions in continuing legal fees in 2024 given the Company has collectible judgments that the Receiver is now pursuing; | |
| ● | An expectation that the notes receivable from related parties will be remunerated in cash and/or stock, and that stock will provide capital market access over the long term; | |
| ● | Expected progress in sales, new agreements that will begin fulfillment in early 2025, our current pipeline, and current larger clients who indicated increases in media activity for 2024, which in the first nine months of 2024, were realized; and | |
| ● | The
Company has additional availability to use its factoring line to extend borrowing 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.
| 10 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(amounts in thousands, except per share data)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU enhances the disclosures related to segment reporting for public entities. It requires entities to disclose significant segment expenses for each reportable segment, providing greater transparency in segment performance. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating how this ASU will impact its consolidated financial statements and disclosures.
On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. ASU 2023-09 largely follows the proposed ASU issued earlier in 2023 with several important modifications and clarifications discussed below. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 (generally, calendar year 2025) and effective for all other business entities one year later. Entities should adopt this guidance on a prospective basis, though retrospective application is permitted. The Company is currently evaluating how this ASU will impact its consolidated financial statements and disclosures.
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 consist of the following:
SCHEDULE OF ACCOUNTS RECEIVABLE
| September 30, 2024 | December 31, 2023 | |||||||
| Accounts receivable, unfactored | $ | $ | ||||||
| Unbilled receivables | ||||||||
| Accounts receivable, factored | ||||||||
| Total Accounts Receivable | $ | $ | ||||||
NOTE 5. DEBT
Factoring Facility & Insurance Financing
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
Accounts
receivables were sold with full recourse. Proceeds from the sale of receivables were $
| 11 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(amounts in thousands, except per share data)
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.
MMG
also enters into short term 10-month loan agreements annually to finance advance payments on crime, EPLI, E&O, and D&O
insurances. In 2023-2024, MMG entered into two loans totaling $
NOTE 6. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. Except as set forth below, we are not aware of any such legal proceedings or claims against the Company.
A series of legal actions and hearings took place starting in March of 2020 with the Vivos Group over Merger agreement violations and Vivos Group debt obligations. Arbitration was agreed to in the fall of 2021 by both the Vivos Group and MMG with the proceedings commencing in February 2022.
On
August 31, 2022, the arbitrator issued the Award with the Company and MMG prevailing on their claims. The awards included citing of fraud
damages. Supplemental awards were subsequently issued on May 17, 2023, October 10, 2023, and finally on October 27, 2023. Summarily,
MMG was awarded the totals of all notes the Vivos Group had with MMG for its borrowings, the contracted interest, attorneys’ fees
and expenses of $
The May 17, 2023 award also appointed a Receiver whose primary function is to collect the contract and fraud damages, including costs, expenses, and fees provided in the awards.
On October 10, 2023, the Arbitrator issued a Supplemental Award appointing the Receiver to assist the Company in collecting the awarded amounts. In the award, the Arbitrator established the powers of the Receiver.
On December 29, 2023, the Circuit Court for Montgomery County, Maryland signed orders entering all three arbitration awards as judgments in Reliability’s case against the Vivos Group. These orders became final on January 29, 2024, when the appeal period expired for the defendants. The judgments are good for 12 years and can be enrolled in other states. Reliability has collectible judgments which the Receiver is now eligible to pursue.
In
September 2022, MMG learned that a Vivos IT, LLC lawsuit against Second Wind Consulting (“SWC”), in May 2019 included MMG
as a plaintiff. SWC effectually countersued plaintiffs Suresh Doki, Naveen Doki, and Silvija Valleru on September 30, 2019, seeking to
collect the balance of $
MMG counsel filed a motion to add four parties to a counterclaim (HCRN, M&M, 360 IT, and US IT). The court approved our motion, and all four parties were added. MMG has since released HCRN from the counterclaim. On July 24, 2024, the court denied SWC’s motion for summary judgement related to their counterclaim.
However,
Healthcare Resource Network (HCRN) believed this motion violated a previous settlement agreement between Maslow and HCRN, dating back
to 2021, which offered broad indemnification language. HCRN provided support to Maslow that it had carved itself out of the SWC agreement
as it did not receive any support from SWC. On August 30, 2024, Maslow reimbursed HCRN $
As for the SWC matter, at the present time, the counterclaim parties have reached a mutual understanding with an expectation of dismissal of the matter with minimal contribution from the company which are in the process of executing.
| 12 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(amounts in thousands, except per share data)
NOTE 7. EQUITY
The Company’s authorized capital stock consists of shares of common stock, with par value. All authorized shares of Company Common Stock are issued and outstanding.
NOTE 8. RELATED PARTY TRANSACTIONS
Stock Purchase Agreement
On
November 9, 2016, Vivos Holdings, LLC, the former owner of MMG, acquired
Related Party Notes Receivable
The Company has several notes receivable from related parties. Prior to the Merger, Vivos Holdings collaborated on a share swap of MMG for other Vivos companies with individuals who included, but were not limited to, Dr. Doki, Shirisha Janumpally (“Mrs. Janumpally”), wife of Dr. Doki, Kalyan Pathuri (“Mr. Pathuri”) husband of Silvija Valleru, Igly Trust, and Judos Trust. These parties 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, which are collectively referred to as the “Vivos Group.”
The
table below is a summary of Vivos Group related party notes receivable which, as of September 30, 2024, totals $
SCHEDULE OF RELATED PARTY NOTES RECEIVABLE
| Note Description | Acquisition Loan to Vivos, LLC | Interco Loan to Vivos Real Estate, LLC | Tax Note | Total Notes Receivable | ||||||||||||
| Origination date | ||||||||||||||||
| Original borrowed amount | $ | $ | $ | $ | ||||||||||||
| Balance on December 31, 2021 | $ | $ | $ | $ | ||||||||||||
| Additional borrowings | ||||||||||||||||
| Accrued interest | ||||||||||||||||
| Balance on December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Repayments | ( | ) | ( | ) | ||||||||||||
| Accrued interest | ||||||||||||||||
| Balance on December 31, 2023 | $ | $ | $ | $ | ||||||||||||
| Accrued interest | ||||||||||||||||
| Repayments | ( | ) | ( | ) | - | ( | ) | |||||||||
| Balance on September 30, 2024 | $ | $ | $ | $ | ||||||||||||
| 13 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(amounts in thousands, except per share data)
In
June 2023, VREH was able to sell the property at 22 Baltimore Road, in Rockville, Maryland, leaving the Company with no liability with
respect to the building that MMG was signed as a guarantor without managements knowledge in 2017. The Company was entitled to cash in
the amount of $
Related Party Relationships
On
October 29, 2019, prior to the Merger, Naveen Doki and Silvija Valleru became beneficial owners of Company Common Stock, equal to approximately
% and
At the present time, the Vivos Group shall not be entitled to vote any of their shares in Reliability at any annual or special meetings of the shareholders. A Receiver is empowered to recover the awards by seizing shares of the Company held by Dr. Naveen Doki and his affiliates, the Vivos Group. Once the judgments in favor of Reliability are satisfied, the restrictions on the rights of the Vivos Group shareholders imposed by the Award shall be lifted.
In
the summer of 2019, prior to the Merger, MMG entered into a Securities Purchase Agreement with several parties including CEO Nick Tsahalis
(“Mr. Tsahalis”), CFO Mark Speck (“Mr. Speck”), both officers and then directors of the Company, and Hawkeye
Enterprises (“Hawkeye”), a company owned and controlled by Mr. Speck. The convertible promissory notes signed by Mr. Tsahalis
and Mr. Speck afforded them both common shares of Reliability based on the initial principal amounts of $
On October 17, 2024, the entire warrant value associated with ten 2019 convertible promissory notes expired. (See also Subsequent Events in Note 10).
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 on first business day following the completion of the Qualified Financing (as defined below) and
expiring 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 $
NOTE 9. BUSINESS SEGMENTS
The
Company operates within
| 14 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(amounts in thousands, except per share data)
The following tables provide a reconciliation of revenue by reportable segment to consolidated results for the three and nine months ended September 30, 2024 and 2023, respectively:
For the Three Months Ended September 30:
SCHEDULE OF RECONCILIATION OF REVENUE BY REPORTABLE SEGMENT TO CONSOLIDATED RESULTS
| 2024 | 2023 | |||||||
| Revenue: | ||||||||
| EOR | $ | $ | ||||||
| Recruiting and Staffing | ||||||||
| Direct Hire | ||||||||
| Video and Multimedia Production | ||||||||
| Total | $ | $ | ||||||
For the Nine Months Ended September 30:
| 2024 | 2023 | |||||||
| Revenue: | ||||||||
| EOR | $ | $ | ||||||
| Recruiting and Staffing | ||||||||
| Direct Hire | ||||||||
| Video and Multimedia Production | ||||||||
| Total | $ | $ | ||||||
NOTE 10. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 14, 2024, 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:
Because
the Company failed to enter into a transaction or series of related transactions, resulting in aggregate gross proceeds to the Company
of at least $
On
October 30, 2024, Maslow signed an agreement with ADP to defer $
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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 condensed 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: our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses; 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, 2023, 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, 2023, 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 condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited condensed 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.
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, 2023.
Management’s Discussion included in the Form 10-K for the year ended December 31, 2023, 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 2024 operations; thus, the reader of this report should read Management’s Discussion included in Form 10-K for the year ended December 31, 2023.
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RESULTS OF OPERATIONS
Revenues
Revenues for the three months ending September 30, 2024, were $6,230, which represented an increase of $889 over the $5,341 generated in the third quarter of 2023. This was the first time we have enjoyed three quarters of consecutive revenue beats on comparative periods to a year ago since 2019. Our top four clients all had increases in revenue when compared to the third quarter of a year ago of $1,394.
Our EOR segment continues to drive this year-over-year growth with third quarter revenue of its own of, which was $826 or.18.5% over 2023’s third quarter EOR revenue of $4,467. Our top four revenue producing clients overall contributed $4,255 or 80.4% of EOR quarterly revenue compared to $2,926 a year ago in the period ending September 30, 2023. The EOR segment revenue quarterly increase from these four clients was a combined $1,329.
Staffing revenue at $822 increased over its performance a year ago by $112 or 15.8%, when the period ended September 30, 2023, resulted in $710. One new client was the catalyst, adding $156 for the quarter. Otherwise, if one declining account is omitted, 13 clients were up $20 over the same period a year ago.
Our Video Production and Direct Hire segments were down comparatively to the third quarter of 2023 as revenue in the third quarter 2024 was $87 and $28, respectively, to $100 and $64 in revenue, respectively, in 2023. Thus, Video Production was down 13.7% and Direct Hire 57%.
Revenues at $17,566 grew $1,574 for the nine-month period ending September 30, 2024, versus the same period in 2023 with a total of $15,992. The increase was driven by our top four revenue producers amassing $12,172 in the nine months ending September 30, 2024, which represents 69.3% of our total revenue and a $3,542 increase over their revenue contributions in the same nine-month period ending September 30, 2023. The aforementioned four clients have each surpassed the million-dollar mark year to date.
EOR drove the nine-month growth with $15,108 in revenue which was $1,868, or 14.1% more than this business garnered in the same period 2023 when it produced $13,240 in revenue. Otherwise, in the nine-month period ending September 30, 2024, Staffing at $2,202 was off 2023’s third quarter pace by $136, or 5.8%, which was about 5.7% better than the gap in the second quarter 2024. Video Production at $177 was $122 or 40.9% away from 2023’s nine-month revenue of $299. Finally, Direct Hire revenue at $79 was $36 off the pace of where it was to the same nine-month period in 2023 at $115.
Cost of Revenue / Gross Profit
For the three-month period ended September 30, 2024, gross profit at $834 saw a $62 or 8.0% improvement comparatively to the three-month period ended September 30, 2023, when gross profit landed on $772. Gross margins, however, at 13.4% were not as strong as they were a year ago at 14.5%. Several factors contributed to the margin drop, including the higher margin Direct Hire revenue being down by $36, our EOR business increasing by 1.3% to 85.0% of revenue at 12.1% margins vs. 12.5% which was caused by a shift in our labor from W2 to lower margin 1099.
The shift of revenue concentration by 1.3% to EOR at 12.1% margins alone resulted in a loss of gross profit by approximately $44 or seventy basis points (.7).
In terms of gross profit, EOR and Staffing saw increases of $83 and $13 in the third quarter of 2024 compared to 2023, while Video Production and Direct Hire were off the mark by $1 and $33, respectively.
For the nine-month period ended September 30, 2024, gross profit at $2,346 improved by $123 or 5.5% over the $2,223 earned comparatively to the nine-month period ended September 30, 2023.
Gross margins for the nine-month period ended September 30, 2024, were 13.4%, versus 13.9% where margins stood a year ago at the end of September 2023. The paradigm causing the deficiency is the same as the third quarter, as the nine-month revenue mix weighed heavier to EOR as the business unit grew in gross profit by $201 while the other three declined by a combined gross margin of $125. This phenomenon alone caused margins to compress by 42 basis points which explains 79% of the 53-basis point spread (13.4 to 13.95%).
EOR margins declined 20 basis points (12.3% to 12.1%) in the nine months ending September 30, 2024 when compared to the same period in 2023, as a heavier use of 1099 labor of almost $1,500 at a 2.5% lower margin more than offset a W2 margin increase by 30 basis points. When extending EOR contracts we continue to incorporate reasonable pricing markup increases which slowly should improve margins. Additionally, our customer mix continues to be more weighted to clients that have favorable pricing terms than those that previously dominated sales. This is why our EOR business is now seeing 12.1% margins as opposed to the 9.8% it did, four years ago.
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General and Administrative (“G&A”)
General and administrative expenses for the three months ending September 30, 2024 were $958 compared to $998 in the same period in 2023, representing a $40 or 4.0% favorable result. The decrease in spending when compared to 2023’s second quarter was rooted in $71 in lower legal costs than a year ago, $23 of which were reimbursed outside counsel fees for an employee matter that a client agreed to take responsibility.
Base salaries, payroll tax and benefits were higher by $44, and benefits by $30 in the third quarter 2024 compared to the same period 2023. Bonus and Commissions, though, saw reductions of $65.
General and administrative expenses for the nine months ending September 30, 2024, were $2,891 compared to $2,843 a year ago, resulting in $48 or 1.7% more in costs 2024 when compared to the same year to date period ending September 30, 2023. Loaded Payroll was $221 higher with a $168 increase in salaries as we have continued to bolster our sales and client services departments. A continued increase in our health insurance benefits and higher usage of our subsidy resulted in a $47 increase in the nine months ending September 2024 compared to 2023. Non-salary SG&A costs $173 or 18.5% favorable as approximately $97 of $103 in Legal cost savings were reclassed or booked in 2024 to Other (See last paragraph of this section below for further details).
Otherwise, cost savings were realized in Contract Services by $77, Staff Events which were scaled back by $39, Payroll fees by $14, and Travel and Meals and Entertainment by $9. Unfavorable changes in SG&A expenses by category were Recruiting Software costs $34 (these are allocated to COR if associated with Staffing or Direct Hire fulfillment), Business Insurance at $15, Communications at $8, and Business License and Taxes at $10 which now consist of state minimum tax and franchise fees to states that are not deemed to be state income taxes. Prior to 2024, we were booking these taxes and fees to state income taxes.
On December 29, 2023, we learned the Maryland Circuit court certified the arbitration award as a judgement. The costs related to the award are now centered on collection and recovery. Since we began separating non-core operational expenses in 2023 and recording them to Other Expense, MMG decided to begin recording all related Receiver expenses from SG&A (operational) legal to Other Expense in the second quarter. This practice continues, which lowers costs associated with non-operational legal obligations.
Interest Expense
In the three-month period ending September 30, 2024, the Company incurred $27 in interest charges for financing, factoring, and paying an advance rate (BIP) against its invoices compared with $12 in the same period a year ago.
In the nine-month period ending September 30, 2024, the Company incurred $62 in interest charges for financing, factoring, and paying an advance rate (BIP) against its invoices compared with $77 in the same period a year ago.
Other Income (Expense)
These non-operational costs, in the third quarter totaled $68 including $32 in Receiver and arbitration award related legal costs. This represented $55 more than the $13 we incurred in the third quarter of 2023. In the three-month period ending September 30, 2024, we incurred $30 more in legal costs related to the SWC matter (see Note 6), and another $25 for a settlement with HCRN. We began booking these non-operational fees to Other Income (Expense) last year in the second quarter.
For the nine months ended September 30, 2024, Other Expense was $297, which was $164 greater than a year ago when Other Expenses tallied $133. Because approximately $97 of the $297 were Receiver related costs, the normalized Other Expense increase year to date in 2024 versus 2023 would have been $68.
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 financing, legal fees associated with the Vivos and related SWC matter and client accounts receivable receipts. Since receipts from client payments are on average 60 days behind payments to field talent, working capital requirements can be periodically challenged. To accelerate cash and ensure sufficient liquidity, we have both a Buyer Initiated Payment (“BIP”) agreement with American Express (“Amex”) and a Factoring Facility with Gulf Coast Bank (“Gulf”).
Our BIP agreement with Amex 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. The implementation of this program in the second quarter of 2023 profoundly impacted our ability to accelerate cash conversion and lower DSO as well as our borrowing costs. Given our use of BIP is with 90-day terms clients, our approximate APR is 6.1% compared to Factoring average approximate APR rate of 10.6% based on the current prime rate of 8%.
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Gulf, on the other hand, 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) remained strong for the trailing twelve months ending September 30, 2024, at 49 compared to a 53 DSO for the trailing twelve months ended September 30, 2023.
These programs, plus the portion of our business in which the client has elected or is required to pay in advance of payroll, approximately $198 every two weeks, counteract the approximate 32% of our revenue from clients that are on 90-day terms, some of which were demanded by larger clients, and have delays in providing receipt of purchase orders.
When looking at A/R aging in relation to payments to due date, as of September 30, 2024, 98.7% was < 31 days aged, 93.3% a year ago, respectively. We had only one hundred and eighty dollars in bad debt over the past five years.
Our primary sources of liquidity are cash generated from operations via accounts receivable and borrowings under our Factoring Facility with Gulf enabling access to the 7% unfactored portion. Because certain large clients have changed their payment practices announcing 60- and 90-day terms amounting to a unilateral extension to contractual terms by 30-60 days, we would otherwise be adversely impacted but not since we adopted Amex’s BIP program which coupled with an increase in our client biweekly prepayments (drawdowns) to $198 from $159, over the past 12 months, have been catalysts to our cash conversion success measured by our DSO improving from 66 at the start of 2023 to 49 at the end of June and carried over to September 2024.
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 EOR 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 September 30, 2024, had notes receivable totaling $5,827, 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 Company 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. No assurance can be given as to when this might take place.
On April 22, 2024, MMG received a refund of $288 from the IRS. The proceeds were accrued in the first quarter since the credits were for past tax events.
As of September 30, 2024, our working capital was $7,536 compared to $7,592 on June 30, 2024, $7,783 at the end of March 2024, to $7,913 at end of December 2023 and compared $8,040 at the end of September 2023. Our adjusted working capital, as of September 30, 2024, excluding the notes receivable related to the Vivos Debtors, totals $1,709, compared to 1,826 compared at the end of June 2024, compared to 2,212 at the end of the first quarter, to $2,412 at the end of 2023, and finally compared to 2,623 at the end of September 2023.
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 have been 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.
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RELIABILITY INCORPORATED
OTHER INFORMATION
September 30, 2024
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A series of legal actions and hearings took place starting in March of 2020 with the Vivos Group over Merger agreement violations and Vivos Group debt obligations. Arbitration was agreed to in the fall of 2021 by both the Vivos Group and MMG with the proceedings commencing in February 2022.
On August 31, 2022, the arbitrator issued the Award with the Company and MMG prevailing on their claims. The awards included citing of fraud damages. Supplemental awards were subsequently issued on May 17, 2023, October 10, 2023, and finally on October 27, 2023. Summarily, MMG was awarded the totals of all notes the Vivos Group had with MMG for its borrowings, the contracted interest, attorneys’ fees and expenses of $1,209, and a contract damage 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. The aggregate amount of the Awards totaled $7,779 as of September 30, 2024.
The May 17, 2023 award also appointed a Receiver whose primary function is to collect the contract and fraud damages, including costs, expenses, and fees provided in the awards.
On December 29, 2023, the Circuit Court for Montgomery County, Maryland signed orders entering all three arbitration awards as judgments in Reliability’s case against the Vivos Group. These orders became final on January 29, 2024, when the appeal period expired for the defendants. The judgments are good for 12 years and can be enrolled in other states. Reliability has collectible judgments which the Receiver is now eligible to pursue.
The following represents legal proceedings where Vivos Group borrowings impact MMG:
In September 2022, MMG learned that a Vivos IT, LLC lawsuit against SWC in May 2019 included MMG as a plaintiff. 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 MMG management or to Reliability before the Merger which closed on October 29, 2019.
MMG counsel filed a motion to add 4 parties to a counterclaim (HCRN, M&M, 360 IT and US IT). The court approved our motion, and all 4 parties were added. MMG has since released HCRN from the counterclaim. SWC filed a motion for summary judgement and on March 18, 2024, MMG responded, opposing the motion. On July 24, 2024, the court denied SWC’s motion for summary judgement related to their counterclaim.
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, 2023, 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.
We are currently engaged in litigation and collecting an arbitration award 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 Condensed Consolidated Financial Statements, while we received a favorable arbitration outcome with the Vivos Group, but the ultimate collection of cash and shares is unknown.
The collection process is complex, and has caused and could continue to cause us to incur significant costs, as well as distract our management over an extended period.
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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) |
| 21 |
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) | |
| November 14, 2024 | /s/ Nick Tsahalis |
| Reliability President and Chief Executive Officer | |
| /s/ Mark Speck | |
| Secretary and Chief Financial Officer |
| 22 |
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
| 23 |
Exhibit 31.1
CERTIFICATIONS UNDER SECTION 302
I, Nick Tsahalis, certify that:
1. I have reviewed this annual report on Form 10-Q of Reliability Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 14, 2024
| /s/ Nick Tsahalis | |
| President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS UNDER SECTION 302
I, Mark Speck, certify that:
1. I have reviewed this annual report on Form 10-Q of Reliability Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 14, 2024
| /s/ Mark R. Speck | |
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATIONS UNDER SECTION 906
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Reliability Incorporated, a Texas corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report for the quarter ended September 30, 2024 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: November 14, 2024 | /s/ Nick Tsahalis |
| President and Chief Executive Officer | |
| Dated: November 14, 2024 | /s/ Mark Speck |
| Chief Financial Officer |