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 52 weeks from April 23, 2023; |
| ● | The
prospect of receiving the amounts awarded in the arbitration hearing in 2023, which include
the $5,327 in notes receivable from related parties, plus awards for fraud totaling $4,327,
contract damages of $1,000, and additional interest, and legal fees, after the receiver is
selected; |
| ● | The
anticipated reduction in legal fees; |
| ● | Addition
of a new Vice President of Sales recently hired with 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 93% of unfactored invoices which as of May 1, 2023, was $2,041. |
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2023
(amounts
in thousands, except per share data)
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:
SCHEDULE OF ACCOUNTS RECEIVABLE
| | |
March 31,
2023 | | |
December 31,
2022 | |
| | |
| | | |
| | |
| Accounts receivable, Unfactored | |
$ | 2,300 | | |
| 3,131 | |
| Unbilled receivables | |
| 358 | | |
| 587 | |
| Accounts receivable, factored | |
| 924 | | |
| 2,619 | |
| Total Accounts Receivable | |
| 3,582 | | |
| 6,337 | |
NOTE
5. DEBT
Tax
Liabilities
As
of March 31, 2023, the Company’s overall tax liability was $5 compared to $688 at end of same period in 2022 and $6 as of December
31, 2022.
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 2% and includes an advance rate of 18 basis points. The amount of an invoice eligible for
sale to Gulf is 93%. This agreement is month to month. The Company continues to be obligated to meet certain financial covenants in respect
to invoicing and reserve account balance.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 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 May 1, 2023, the required amount was 10%.
Any excess of the reserve amount is paid to the Company as requested. If a reserve shortfall exists for a period of ten days, the Company
is required to make payment to Gulf for the shortage.
Accounts
receivables were sold with full recourse. Proceeds from the sale of receivables were $2,971 for the three-month period ending March 31,
2023, compared to $2,811 for the same period ending on March 31, 2022. The total outstanding balance under the recourse contract was
$924 on March 31, 2023, compared to $2,619 as of December 31, 2022, and $1,590 on March 31, 2022.
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 three months ended March 31,
2023, and 2022 totaled $44 and $29, respectively.
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.
On
March 3, 2022, Maslow received a notice of default, acceleration, and demand for payment-in-full from FVCBank due to incurable events
of default on behalf of Borrower, VREH. Per the default notice, “As of March 2, 2022, the total indebtedness due and owing under
the Loan (the ‘‘Debt’’) is $1,743 consisting of an unpaid principal balance in the amount of $1,703 accrued and
unpaid interest in the amount of $7, deferred payments in the amount of $20 and late fees in the amount of $12 plus prepayment penalties
and attorneys’ fees, costs and expenses,” less setoff fees of $16. Maslow may have grounds to contest it being a guarantor
on the loan.
On
July 12, 2022, MMG was advised that a foreclosure sale of the 22 Baltimore Road property was scheduled to take place on August 4, 2022,
at Montgomery County Circuit Court in Rockville, Maryland. It was subsequently cancelled after VREH filed for bankruptcy on August 2,
2022.
On
August 2, 2022, VREH filed for Chapter 11 bankruptcy in the District Court of Maryland.
Maslow
filed a Motion to Vacate Confessed Judgment entered against it by FVC Bank in the Circuit Court for Fairfax County.
On
November 17, 2022, FVC Bank and VREH entered into a Stipulation and Consent Order through the bankruptcy court that provides VREH to
pay back taxes and interest, hire a new property manager and make repairs to the building, and work on a plan to refinance or sell the
building. This automatic stay to the bankruptcy proceeding provides VREH until April 15th, 2023, to either refinance or sell
the building to prevent FVC Bank from foreclosing on the property and commencing action to sell the property.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2023
(amounts
in thousands, except per share data)
In
April 2023, VREH and FVC Bank negotiated through the bankruptcy court a revised Stipulation and Consent Order. VREH has so far met the
requirements of the new order which included paying down the liability owed to FVC Bank by $350,000. VREH is working towards obtaining
a commitment letter from a lender so that one of their affiliated entities can purchase the building by June 1st, 2023. The
Company continues to dispute its placement as a guarantor on the mortgage associated with FVC Bank and is working to mitigate any liability
associated with VREH’s default on the 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 30th, 2019, seeking to collect the balance of $402,500 not paid by the Vivos Group.
These suits were not disclosed to Maslow management or to Reliability before the Merger closed on October 29, 2019. MMG is weighing its
legal options at this time. The Company filed a motion in January 2023 to include all original parties to the SWC Agreement. The court
has not yet issued its ruling on the motion filed.
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 300,000,000 shares of common stock, with no 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 100% of MMG through a stock acquisition exchange for a purchase
price of $1,750, of which: (i) $1,400 was paid at settlement with proceeds from MMG and (ii) a promissory note to pay the remaining $350
(“Vivos/MMG Purchase Agreement”). The promissory note was to be paid in twenty-four equal installments, including interest
at 4.5%, in the amount of approximately $15, commencing six months after closing, with the last payment on March 1, 2019. These payments
were paid by MMG on behalf of the Vivos Debtors. The Vivos Debtors subsequently entered into a promissory note receivable with MMG, described
below, for the full stock purchase price. No payment has ever been made against this note and between 2018 to present, there has been
$2,503 in additional borrowings.
As
of March 31, 2023, and December 31, 2022, the receivable totaled $5,327 and $5,251, respectively. This is not inclusive of the additional
amounts awarded in the arbitration.
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 4.5% and 5.5% respectively. The rate adjustment for the allowed periods was made using the eligible agreement
rates.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2023
(amounts
in thousands, except per share data)
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 $1,400. As defined by the Vivos/MMG Purchase Agreement, the loan consisted of two periods, whereby in the first
period no principal or interest payments were required. During the second loan period, interest was supposed to have been paid in 20
equal consecutive payments, quarterly. Principal plus any unpaid interest is due September 20, 2023. As of December 31, 2022, the total
outstanding balance was $3,585 which includes accrued interest receivable of $168.
On
November 15, 2017, MMG executed an intercompany promissory note receivable with VREH in the amount of $772. There were two loan periods
defined. During the first loan period, interest accrued monthly and a new loan amount of $781 was subject to a second loan period. As
of March 31, 2023, the total outstanding balance was $868 which includes accrued interest receivable of $14 for the period ending March
31, 2023.
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 $3,000 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 5% 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.
Over
the period between November 2016 and March 31, 2023, the Vivos Group borrowed an additional $2,547. which is included in the note receivable
totaling $3,643.
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 $750. The note bears interest at 2.5% per year and requires the Vivos Group to make
monthly payments to MMG of $10 beginning December 1, 2019, with balance due and payable on November 1, 2026. Upon an event of default
has occurred, MMG has the right to declare the entire unpaid balance of the note due and payable. The note was secured by 30,000,000
shares of Company Common Stock, was due and payable upon a default by Vivos. In addition, both Naveen Doki and Silvija Valleru personally
guaranteed the repayment of the note by the Vivos Group. Naveen Doki and Silvija Valleru were beneficial owners of Vivos and are also
5% or greater beneficial owners of Company Common Stock, which is qualified by the Merger Arbitration complaint. As of March 31, 2023,
the total outstanding balance was $869, which includes 2023 interest of $12.
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 $475. (See Section 1A). The $475 is included in the additional borrowing cited above.
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
206,606,528 and 51,652,908 shares of RLBY Common Stock, respectively, equal to 68.9% and 17.2% of the total number of shares of RLBY
Common Stock outstanding after giving effect to the Merger, respectively. The Company’s arbitration award thus far includes relinquishment
of shares of the Company common stock 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 (see Note 1).
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2023
(amounts
in thousands, except per share data)
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 163,232 shares each of common stock.
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 $5,000. The exercise price per full share of the Company common stock shall be 120% of the
average sale price of the Company common stock across all transactions constituting a part of the Qualified Financing, with equitable
adjustments being made for any splits, combinations or dividends relating to the Company common stock, or combinations, recapitalization,
reclassifications, extraordinary distributions and similar events, that occur following
one
transaction constituting a part of the Qualified Financing and prior to one or more other transactions constituting a part of the Qualified
Financing (the “Exercise Price”). Convertible note warrants were not valued and included as liability on balance sheet because
of uncertainty around their pricing, value and low probability at this juncture in receiving the $5,000 trigger.
NOTE
9. BUSINESS SEGMENTS
The
Company operates within four
industry segments: EOR, Recruiting and Staffing, Direct Hire, and Video Production. The EOR segment
provides media field talent to a host of large corporate customers in all 50 states. The Recruiting and Staffing segment provides
skilled Media and IT field talent on a nationwide basis for customers in a myriad of industries. Direct Hire fulfils direct
placement requests by MMG clients for a wide variety of posts, including administrative, media and IT professionals. The Video and
Multimedia Production segment provides Script to Screen services for corporate, government and non-profit clients,
globally.
The
following table provides a reconciliation of revenue by reportable segment to consolidated results for the three months ended March 31,
2023, and 2022, respectively:
For
the three months ended March 31:
SCHEDULE OF RECONCILIATION OF REVENUE AND OPERATING INCOME BY REPORTABLE SEGMENT TO CONSOLIDATED RESULTS
| | |
2023 | | |
2022 | |
| Revenue: | |
| | | |
| | |
| EOR | |
$ | 4,273 | | |
$ | 4,773 | |
| Recruiting and Staffing | |
| 765 | | |
| 923 | |
| Direct Hire | |
| 30 | | |
| 39 | |
| Video and Multimedia Production | |
| 131 | | |
| 48 | |
| Total | |
$ | 5,199 | | |
$ | 5,783 | |
| Revenue | |
$ | 5,199 | | |
$ | 5,783 | |
NOTE
10. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through May 10, 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
April 29, 2023, the Company received a check from the IRS for $1,203 covering its second quarter ERC claim which at the end of March
31, 2023, was posted as receivable (Item 1) for $1,226 including accrued interest.
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.
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 March 31, 2023, were $5,199 which was $584 or 10.1% less than for the same period in 2022 with revenue at
$5,783. The EOR segment had the greatest negative impact, falling $500 to $2,273 from $4,773 in year over year quarterly revenue. One
reason for the dip was that a year ago one client had a creative project that employed a significant number of freelance workers we provided.
It was a project carried over from 2021 that ended in January 2022. Another reason was one client converted 7 of our employees from our
payroll to theirs.
Recruiting
and Staffing revenues dipped by $158 from $923 in the period ending March 31, 2022, to $765 comparatively in 2023, while Direct Hire
revenues were off the first quarter pace set in 2022 by $9 landing on $30 versus $39 a year ago.
Video
Production grew, however, delivering $131 in the first quarter 2023 versus $48 in the first quarter ending March 31, 2022, which was
a $83 or 173% increase. It was the highest quarterly revenue total for Video Production since the quarter ending December 31, 2021, which
this business segment then garnered $263 in revenue.
Cost
of Revenue / Gross Profit
Gross
profit for the three-month period ending March 31, 2023, was $711 representing 13.7% of revenues, which was $19 lower than the $730 in
gross profit MMG earned in 2022’s first quarter when the gross margin was at 12.6%.
The
catalyst for the 110-basis point quarter over quarter jump was EOR, as first quarter margins increased from 10.4% in 2022 to 11.9% in
2023. Otherwise, comparatively, first quarter 2023 to 2022: Direct Hire margins were at 77.1% as opposed to 89.6%, as recruiting resources
were required for a longer term than a year ago; IT Staffing was 22.6% vs. 19.4% in 2022; Media Staffing at 19.7% vs. 22.9%; and Video
Production at 18.7% vs. a negative margin due to a cost overrun a year ago.
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 throughout the year. In 2022 and
early 2023 several EOR contracts were extended resulting in a slight improvement in margins and 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 March 31, 2023, were $933 compared to $1,305 in the same period in 2022, representing
a $372 or 29% decrease. $309 of the $378 was a result in the reduction in arbitration related costs. Commercial legal dropped $21 as
well. Employee salaries and benefits were comparatively down $135 as 2022 bonus accrual was $104 higher than approved for payment, loaded
salaries (including benefits and taxes) were down $18 and commissions down $13 compared to a year ago. A savings of $17 was derived from
our business insurance package as a new less costly D&O insurance policy with greater benefits was put into place. Conversely contract
service cost increased by $50, Staff events by $26, staff development by $13 and recruiting software by $12.
We
expect increases in payroll as certain roles have been contracted and sales and sales support had headcount changes in mid-March.
Interest
Expense
The
Company incurred $44 in interest charges for financing (factoring) its invoices in the first quarter 2023 compared with $29 in the same
period a year ago, as the prime interest rate soared from 3.5% at the end of the first quarter 2022 to 8% by end of the first quarter
2023. Our interest rate is 2 points greater than prime, meaning comparatively our costs went from approximately 5.5% to 10%.
Other
Income (Expense)
Other
Income in the first quarter was under $1 compared with $3 in the first quarter 2022.
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 March 31, 2023, is at 66 comparable to 61 DSO for the
trailing twelve months ending March 31, 2022.
This
is because 53% of our revenue is from clients that over the past 3 years began demanding 90-day terms. Delays in receipt of purchase
orders also has had an adverse impact on DSO. Alternatively, we have had an increase over the past 12 months in client advances
which now average approximately $260 a month vs. $60 prior in 2022.
When
looking at A/R aging in relation to payments to due date, as of March 31, 2023, 74.9% of our $3,224 in total trade A/R was
current and 91.4% was < 31 days aged, compared to 68.5% and 88.2% a year ago, respectively. Our > 60 days aged invoices represent
$48 or 1.5% of our total A/R.
Our
Federal and state tax liability is $5 compared to $688 a year ago, and $6 as of December 31, 2022.
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 can be adversely impacted since Gulf does
not provide credit if an account obligor pays more than 120 days after the invoice date.
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 March 31, 2023, had notes receivable totaling $5,327 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.
Over
the past three years MMG received eligible forgiven PPP Loan totaling $5,216, ERC cash of $3,501 out of eligible $4,676, which has bolstered
working capital enabling us to invest in software, build A/R reserves, and hire needed resources for operations. On April 29, 2023, we
received a check from the IRS for $1,203 to pay for our second quarter 2021’s eligible ERC 941X submission.
Overall,
these programs bolstered our working capital and enabled us to bring back employees and continue to serve our clients.
As
of March 31, 2023, our working capital was $8,457, compared to $8,815 at the end of March 2022. This includes the $1,174 in ERC
principal and additional interest received on April 28, 2023. Our adjusted working capital at the end of March 2023, excluding the
notes receivable related to the Vivos Debtors totals $3,130 compared to 3,776 a year earlier.