NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(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 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, Permanent Direct Placements, and Video and Multimedia Production, which provides script to screen media talent.
Our Staffing segment provides skilled field talent on a nationwide basis for Media, IT, and finance and accounting client partner projects.
Our Staffing segment occasionally received requests for (direct) placements. Because of an uptick in direct hire requests in 2021, factoring
in the much higher margins that business derives. Video Production involves assembling and providing crews for special projects that
can last anywhere from a week to 6 months.
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 in 2007. The Company completed a reverse merger with MMG (the “Merger”) on October 29, 2019.
Company
Background
Linda
Maslow founded Maslow Group initially in 1988 and incorporated the firm under the name the Maslow Media Group Inc., 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
2018, Vivos Holdings and several other Vivos companies, (“Vivos Group”) engaged an investment banker who approached management
of Reliability to discuss a potential reverse merger transaction. The other investors who collaborated on a share swap of MMG for other
Vivos companies were Shirisha Janumpally (“Mrs. Janumpally”),
wife of Dr. Doki, and Kalyan Pathuri (“Mr. Pathuri”), husband of Silvija Valleru.
These
4 individuals, Dr. Doki, Mrs. Janumpally, Mr. Pathuri, and Mrs. Valleru, also have common ownership combinations in a number of other
entities [Vivos Holdings, LLC. Vivos Real Estate Holdings, LLC (“VREH”), Vivos Holdings, Inc., Vivos Group, Vivos Acquisitions,
LLC., and Federal Systems, LLC], (collectively referred to herein as “Vivos Group”).
The
reverse merger was consummated on October 29, 2019. As a result of the Merger, the Vivos Group (Vivos Holdings LLC, officially) acquired
approximately 84% of the issued and outstanding shares of Reliability which were distributed by Vivos Holdings, LLC.
On October 29, 2019, MMG became a wholly owned subsidiary
of Reliability by merging R-M Merger Sub, Inc., a Virginia corporation and a wholly owned subsidiary of Reliability, with and into Maslow,
with MMG being the surviving corporation.
The
Company ceased to be a “shell” company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”) by virtue of its ownership of MMG following the Merger. The acquisition of MMG also resulted in a “change
in control” of Reliability.
On
or about February 25, 2020, the Company, as plaintiff, filed a complaint with the Circuit Court of Montgomery County, Maryland against
Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC and Dr. Doki (collectively “Vivos Debtors”), to enforce Maslow’s
rights under certain promissory notes and a personal guarantee made by the Dr. Doki.
On or about May 6, 2020, the Vivos Debtors filed
a counterclaim and third-party complaint for damages, declaratory and injunctive relief, and jury demand (the “Counterclaim”).
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(amounts
in thousands, except per share data)
The
Company also began pursuing arbitration in New York in 2020, which was the contractual remedy for breaches of the Merger agreement between
MMG and Reliability. It is the Company’s contention that the Vivos Group failed to disclose several material pieces of information
to Reliability management pre-merger as was required by the Merger agreement. Additionally, the Vivos Group declined to honor multiple commitments made to Reliability, including a $3,000 promissory note and an agreement to shield the Company from their personal debt
per the “Liquidation Agreement.” Per the Merger Agreement, these breaches can lead to a loss of up to all shares in Reliability
for the Vivos Group.
On
December 23, 2020, at a hearing in the Maryland Circuit Court of Montgomery County, Maryland, a motion by the Vivos Group to compel a
shareholder meeting was summarily dismissed. On January 20, 2021, Defendants and Counter/Third-Party Plaintiffs, Vivos, VREH, Dr. Doki,
Mr. Pathuri, Igly, Judos, by counsel, filed a Notice of Appeal on the dismissal. However, the deadline to pursue the appeal lapsed absent
additional filings by the Vivos Group.
On
July 21, 2021, MMG settled the obligation which with it had been committed by Vivos Holdings, LLC in July 2018, with Libertas Funding,
LLC and Kinetic for $475. This debt belonged to Vivos Holdings, LLC, and the aforementioned Liquidation Agreement, had been created as
a safeguard to shelter MMG should Vivos Holdings, LLC default, which actually transpired prior to the Merger closing in October 2019.
On
September 7, 2021, the Company entered to Arbitration and Tolling Agreements (the “Agreements”) with the Vivos Group and
all other persons who were parties to the pending litigation previously reported in the Texas, New York, and Maryland courts and before
the American Arbitration Association. The Agreements call for the stay or dismissal of the pending litigation, with the parties agreeing
to resolve their disputes before a single arbitrator in Maryland.
On
March 21, 2022, the Company began its arbitration proceedings against the Vivos Group. MMG contends the Vivos Group committed merger
violations which could result in relinquishment in whole or in part shares of Company common stock received by the Respondents in connection
with the Merger. We anticipate an arbitration decision in the third quarter 2022.
We
refer below to the disputes between Reliability and the Vivos Group as the “Vivos Matter.”
Upon
a final resolution as to the underlying ownership and rights of certain shareholders, the Company intends to hold an annual meeting of
shareholders within a reasonable time thereafter.
Basis
of presentation
The
unaudited consolidated interim financial statements include the accounts of the Company and all wholly owned divisions, including its
100% owned subsidiary, MMG. All significant intercompany accounts and transactions have been eliminated in consolidation.
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States and the rules of the SEC and should be read in conjunction with the audited financial statements and notes thereto
contained in our Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for
a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results
of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
For
further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report
on Form 10-K for the year ended December 31, 2021.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(amounts
in thousands, except per share data)
Concentration
of Credit Risk
For
the six months ended June 30, 2022, 22.5% of revenue came from AT&T Services, Inc. (inclusive of its DirecTV division) (“AT&T”),
21.1% from Goldman Sachs, and 13.2% from Janssen Pharmaceuticals (which includes workforce partner Johnson & Johnson). Combined,
this totals 56.8% of revenue. AT&T, Goldman Sachs, Janssen, and Morgan Stanley accounted for 24.1%, 16.3%, 11.2% and 13.5%, respectively,
65.1% in aggregate revenue for the same period ended June 30, 2021. No other client has exceeded 10% of revenues in 2022 or 2021.
NOTE
2. LIQUIDITY AND GOING CONCERN
Going
Concern
Management
considers on a regular basis, the Company’s ability to continue as a going concern. The factors which have impacted the business
and our liquidity are:
| |
● |
Uncertainty in outcome
of the arbitration hearing with Vivos Group which will likely have decision rendered in the third quarter 2022; |
| |
● |
Operating
losses in nine of the last ten quarters starting with the first quarter of 2020 through the second quarter of 2022 ending June 30,
2022, totaling in aggregate $; |
| |
● |
The slow-moving rebound
of client demand for our services to pre-pandemic levels; |
| |
● |
Difficulties in raising
cash via public markets for organic and inorganic growth, due to lack of unissued authorized shares available for Company use; |
| |
● |
Inability to realize approximately
$5,094 in notes receivables from Vivos Group; |
| |
● |
Commitments and Contingencies,
described further in Note 6. |
All
these conditions noted and factored above with the primary risk being that the arbitration (see Item 1) outcome is not in the Company’s
favor, and the $5,094 in notes receivable is not realized in full, part, or all, creates substantial doubt about the Company’s
ability to continue as a going concern.
Additionally,
from an operational view the underlying business has yet to fully recover from COVID-19 with current quarterly comparative revenue levels
down 32% from 2019 standards.
Therefore,
there can be no assurances that the Company will be successful in managing the impact of the foregoing or its ability to maintain sufficient
liquidity over a period of time that will allow it to continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome from these uncertainties.
The
Company is quoted on the OTC Marketplace under the symbol “RLBY.”
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(amounts
in thousands, except per share data)
NOTE
3. ACCOUNTS RECEIVABLE
Accounts
receivable can be broken down as follows
SCHEDULE
OF ACCOUNTS RECEIVABLE
| | |
6/30/2022 | | |
12/31/2021 | |
| Accounts Receivable | |
| | | |
| | |
| Trade receivables | |
$ | 4,698 | | |
| 5,592 | |
| Unbilled receivables | |
| 802 | | |
| 813 | |
| Less allowance for doubtful accounts | |
| - | | |
| - | |
| Total trade accounts receivable | |
| 5,500 | | |
| 6,405 | |
NOTE
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adopted
Accounting Pronouncements
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity
no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting
unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. Instead, under the amendments
in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting
unit with its carrying amount. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount
to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments
in this update will be effective for the Company beginning with fiscal year 2023, with early adoption permitted. The Company adopted
this during 2021 resulting in an impairment charge as stated in the financial statements.
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
5. DEBT
Tax
Liabilities
When
MMG was initially acquired by Vivos Holdings, LLC in December 2016, the Company’s corporate status was changed from an S Corp to
a C Corp due to its new ownership structure. This triggered an accelerated tax event, a $215 estimated annual impact per year for 4 years
which was accounted for in subsequent tax returns through 2019. In 2021, MMG completed settlement of the estimated $860 tax liability
caused by the Vivos Group in 2017, paying the final estimated portion of $300 in 2021.
As
of June 30, 2022, the Company no longer has a federal tax liability related to tax periods prior to 2020, with the combined federal and
state tax liability at $93.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(amounts
in thousands, except per share data)
Factoring
Facility
Triumph
Business Capital
On
November 4, 2016, the Company entered into a factoring and security agreement with Triumph Business Capital (“Triumph”).
Pursuant to the agreement, the Company received advances on its accounts receivable (i.e., invoices) through Triumph to fund growth and
operations. The proceeds of this agreement were used to pay operating costs of the business which include employee salaries, vendor payments
and overhead expenses. On January 5, 2018, the agreement was amended to lower the factoring fee and interest rate for a term of one year.
The agreement was amended again on January 19, 2018, to increase the maximum advance rate to $5,500. In January 2020, a new agreement
was negotiated with Triumph lowering advance rate from 50 basis points to 15 and the interest rate from prime plus 3.5% to prime plus
2%. The amount of an invoice eligible for sale to Triumph went from 90% to 93%. The agreement which previously renewed annually, is now
month to month. The Company continues to be obligated to meet certain financial covenants in respect to invoicing and reserve account
balance.
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 June 30, 2022, the required amount was 7%.
Any excess of the reserve amount is paid to the Company on a weekly basis, as requested. If a reserve shortfall exists for a period of
ten days, the Company is required to make payment to the financial institution for the shortage.
Accounts
receivables were sold with full recourse. Proceeds from the sale of receivables were $4,149 for the three-month period ending June 30,
2022, compared to $1,131 for the same period ending on June 30, 2021, and $6,960 compared to $2,453 for the six months ended June
30, 2022 and 2021, respectively. The total outstanding balance under the recourse contract was $2,725 on June 30, 2022, compared to $946
as of December 31, 2021.
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 June 30, 2022 and 2021 totaled $36 and $18, respectively and $66
and $63 for the six months ended June 30, 2022 and 2021, respectively.
NOTE
6. COMMITMENTS AND CONTINGENCIES
There
are a number of debts and confessions of judgement (“COJ”) related to the Vivos Group that included MMG 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.
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 MMG, 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. MMG leased this space on market terms. This
obligation had not been disclosed by the Vivos Group to Reliability prior to the Merger and consequently not included in MMG’s
financial statements.
On
March 3, 2022, MMG received a notice of default, acceleration, and demand for payment in full, from FVCBank due to incurable events of
default on behalf of Borrower, Vivos Real Estate Holdings, LLC. 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. MMG believes it has grounds
to contest it being a guarantor on the loan.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(amounts
in thousands, except per share data)
On
July 12, 2022, MMG was advised that a foreclosure sale of the 22 Baltimore Road property was scheduled to take place on Thursday August
4, 2022, at Montgomery County Circuit Court in Rockville, Maryland. It was subsequently cancelled after VREH filed for bankruptcy on August
2nd.
Maslow
has filed a Motion to Vacate Confessed Judgment entered against it by FVC Bank in the Circuit Court for Fairfax County and has requested
that the matter be heard before the end of 2022.
On
October 9, 2018, Maslow Media Group, Inc. was named as a defendant in an Affidavit of COJ filed in the Supreme Court of the State of
New York in relation to a case brought by Hop Capital against members of the Vivos Group, which had collectively agreed to pay a sum
of $400
to HOP Capital. Maslow Media Group, Inc. is named as one defendant among six other defendants. The claim brought by HOP Capital
against the defendants in this case is in relation to a Merchant Agreement dated October 4, 2018, to which Maslow Media Group, Inc.
was not a party. As such, MMG contends that being named in the Affidavit of COJ as a defendant was made in error and is currently
seeking to have its name removed from the Affidavit of COJ as a defendant. As of August 10, 2022, we have not been contacted again
on this matter, nor have we been notified on any developments.
On
or about May 6, 2020, the Vivos Debtors and other Vivos Group members, specifically. Mr. Pathuri, Judos, and Igly responded to the Vivos
Default Claim with the “Vivos Default Counterclaim.” The Company continues to believe that the Counterclaim has no merit
and is vigorously defending itself and its indemnified officers, directors, and other parties as permitted by the Company’s organizational
documents, via a March 2022 arbitration hearing which both parties agreed on September 7, 2021, to resolve their disputes before a single
arbitrator in Maryland. The hearing portion began on March 21,2022 and has since concluded. A decision is not anticipated until the third
quarter 2022.
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
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 the 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.
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. In January 2021, MMG began applying the legal minimum rate of interest which per Virginia
statute is 8.0% on two of the three defaulted notes receivable below. Per the 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 that the two notes had clauses capping the default interest at 4.5% and 5.5%, respectively. The rate adjustment for the
allowed periods were made using the eligible agreement rates.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(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 consists of two periods, whereby the first period
from November 15, 2016, until September 30, 2018, no principal or interest payments were required. Interest would accrue monthly and
a new loan in the amount of $1,773 would be subject to a second loan period. During the second loan period, interest shall be paid in
20 equal consecutive payments, quarterly. Principal plus any unpaid interest is due September 20, 2023. Interest during both loan periods
accrues at a rate of 2.5%. Additionally, monthly payments of $15 are made on behalf of Vivos Holdings, Inc. to the seller by MMG. These
payments, plus any other payments made by MMG on behalf of Vivos Holdings, LLC, are added to the principal balance of the promissory
note receivable (“Vivos/MMG Purchase Agreement Note Receivable”). In 2018, all quarterly interest payments to be made in
phase 2 were offset by the management fees due to Vivos Holdings. As of June 30, 2022, the total outstanding balance on this note was
$3,446 which includes accrued interest for the period of $39.
On
November 15, 2017, MMG executed an intercompany promissory note receivable with VREH in the amount of $772. As defined by the agreement,
the loan consists of two periods, whereby the first period from November 15, 2017, until September 30, 2018, no principal or interest
payments are required. During the first loan period, interest accrued monthly and a new loan amount of $781 will be subject to a second
loan period. During the second period, interest is payable in 20 equal consecutive instalments and the principal balance plus accrued
and unpaid interest is due September 30, 2023. Interest during both periods accrues at a rate of 3.5% annually. In 2018, all quarterly
interest payments to be made in Phase 2 were offset by the management fees due to Vivos Holdings, LLC. In addition, principal payments
totaling $30 were made by the Vivos Group. As of June 30, 2022, the total outstanding balance was $835 which includes accrued interest
for period of $12.
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 receivables.
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,
which occurs upon failure of Vivos to make any monthly payment due under the terms of the note, MMG has the right to declare the entire
unpaid balance of the note due and payable. The note is secured by 30,000,000 shares of Company Common stock, which is due and payable
upon a default by Vivos, which occurs upon failure of Vivos to make any monthly payment due under the terms of the note. In addition,
both Dr. Doki and Silvija Valleru personally guaranty the repayment of the note by the Vivos Group. Dr. 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. On December 31, 2021, the total outstanding balance was $790, which includes interest for period of $5. As of June 30, 2022,
the total outstanding balance was $800, which includes interest for period of $5.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(amounts
in thousands, except per share data)
Additionally,
the Vivos Group had borrowings of $2,503 adding to the original notes; with $2,383 between 2018 through 2021. As of June 30, 2022 and
December 31, 2021, the receivable totaled $5,094 and $4,985, respectively.
Debt
Settlement Agreements
On
July 21, 2021, MMG settled the obligation which Vivos Holdings, LLC had obligated MMG to in July 2018, with Libertas Funding, LLC and
Kinetic for $475.
On
March 6, 2022, MMG received a notice of default, acceleration, and demand for payment-in-full from FVC Bank due to incurable events
of default on behalf of Borrower Vivos Real Estate Holdings, LLC.
Maslow
has filed a Motion to Vacate Confessed Judgment entered against it by FVC Bank in the Circuit Court for Fairfax County and has requested
that the matter be heard before the end of 2022.
Related
Party Relationships
On
October 29, 2019, prior to the Merger, pursuant to the Merger Agreement, Dr. 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 is seeking damages, which, if granted, will likely be the remedy
set forth within the Merger Agreement which is primarily the relinquishment in whole or in part shares of Company common stock received
by the Respondents in connection with the Merger.
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”).
The 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.
On
September 7, 2021, the Company entered in Arbitration and Tolling Agreements with alleged shareholder Dr. Doki, and his affiliates and
all other persons who were parties to the pending litigation previously reported in the Texas, New York and Maryland courts and before
the American Arbitration Association. The Agreements call for the stay or dismissal of the pending litigation, with the parties agreeing
to resolve their disputes before a single arbitrator in Maryland. The parties also agreed to maintain the status quo in corporate governance
and related matters pending a final non-appealable judgment confirming any award in arbitration. The parties also signed a Tolling Agreement
to toll the statute of limitations following the dismissal of a pending litigation.
RELIABILITY
INCORPORATED AND SUBSIDIARY
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2022
(amounts
in thousands, except per share data)
NOTE
9. BUSINESS SEGMENTS
The
Company operates within four industry segments: EOR, Recruiting and Staffing, Permanent (Direct) Placements, and Video Production. The
EOR segment provides freelance 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. Permanent Placements was added as a
segment in the second quarter 2021 as the Company began to take on clients who desired the Company source candidates for permanent hire
on a regular basis. The Video and Multimedia Production segment provides Script to Screen services for corporate, government, and non-profit
clients, globally.
The
following tables provides a reconciliation of revenue by reportable segment to consolidated results for the three and six months ended
June 30, 2022 and 2021, respectively:
For
the three months ended June 30:
SCHEDULE
OF RECONCILIATION OF REVENUE AND OPERATING INCOME BY REPORTABLE SEGMENT TO CONSOLIDATED RESULTS
| | |
2022 | | |
2021 | |
| Revenue: | |
| | | |
| | |
| EOR | |
$ | 5,515 | | |
| 3,981 | |
| Recruiting and Staffing | |
| 898 | | |
| 812 | |
| Permanent Placement | |
| - | | |
| 30 | |
| Video and Multimedia Production | |
| 68 | | |
| 251 | |
| Total | |
$ | 6,481 | | |
| 5,074 | |
For
the six months ended June 30:
| | |
2022 | | |
2021 | |
| Revenue: | |
| | | |
| | |
| EOR | |
$ | 10,288 | | |
| 8,478 | |
| Recruiting and Staffing | |
| 1,822 | | |
| 1,696 | |
| Permanent Placement | |
| 39 | | |
| 30 | |
| Video and Multimedia Production | |
| 115 | | |
| 664 | |
| Total | |
$ | 12,264 | | |
| 10,868 | |
NOTE
10. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through August 15, 2022, the date on which the unaudited 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:
Maslow
has filed a Motion to Vacate Confessed Judgment entered against it by FVC Bank in the Circuit Court for Fairfax County and has requested
that the matter be heard before the end of 2022.