| NATURE OF OPERATIONS AND BASIS OF PRESENTATION | NOTE
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION Nature
of Operations Reliability,
Inc. is a leading provider of employer workforce management solutions that operates, along with its wholly owned subsidiary, The Maslow
Media Group, Inc (“MMG”), (collectively, “Reliability” or the “Company”), primarily within the United
States of America in four industry segments: Employer of Record (“EOR”), Recruiting and Staffing, Direct Placements, and
Video and Multimedia Production Services, which provides script to screen media talent. Our Staffing segment provides skilled field talent
on a nationwide basis for Media, IT, and finance and accounting client partner projects. Video Production involves assembling and providing
staff and/or crews with equipment for live or taped programming. This service can be provided within client facilities or on location
across the globe and cover pre-production planning to post-production services. Reliability
was incorporated under the laws of the State of Texas in 1953, but the then principal business of the Company started in 1971 was closed
down in 2007. The Company completed a reverse merger with MMG (the “Merger”) on October 29, 2019. Company
Background Linda
Maslow founded Maslow Group initially in 1988 and incorporated the firm under the name the Maslow Media Group Inc. (“MMG”)
in March 1992. On
November 9, 2016, MMG was sold to Vivos Holdings, LLC (“Vivos Holdings”), owned by Dr. Naveen Doki (“Dr. Doki”)
and Silvija Valleru (“Ms. Valleru”). In
2018, Vivos Holdings and several other Vivos companies engaged an investment banker who approached management of Reliability to discuss
a potential reverse merger transaction. The other investors who collaborated on a share swap of MMG for other Vivos companies were Shirisha
Janumpally (“Mrs. Janumpally”), wife of Dr. Doki, and Kalyan Pathuri (“Mr. Pathuri”), husband of Silvija Valleru. These
individuals included, but were not limited to, Dr. Doki, Mrs. Janumpally, Mr. Pathuri, Mrs. Valleru, Igly Trust, and Judos Trust also
have common ownership combinations in a number of other entities (Vivos Holdings, LLC; Vivos Real Estate Holdings, LLC (“VREH”);
Vivos Holdings, Inc.; Vivos Group; Vivos Acquisitions, LLC; and Federal Systems, LLC, (collectively referred to herein as “Vivos
Group”)). The
reverse merger was consummated on October 29, 2019. As a result of the Merger, the Vivos Group (Vivos Holdings LLC, officially) acquired
approximately 84 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. RELIABILITY
INCORPORATED AND SUBSIDIARY NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September
30, 2023 (amounts
in thousands, except per share data) Upon
purchasing MMG and thereafter, the Vivos Group began borrowing monies from MMG starting with $ 1,400 3,418 3,000 The
attempted collection of the guarantee and debt from the Vivos Group set off a chain of legal events culminating in an arbitration hearing
and award in 2022. (See below and Item 1 for complete summary). We refer below to the disputes between Reliability and the Vivos Group
as the “Vivos Matter.” A
series of legal actions and hearings took place starting in March 2020 through September 2021. At that time, arbitration was agreed to
by both the Vivos Group and MMG. The proceedings began in February 2022 and were completed in March 2022. On
August 31, 2022, the Arbitrator issued an award (the “Award”) with the Company prevailing on their claims. The Company was
awarded the following:
● an
award in favor of MMG against Vivos Holdings, LLC under Note I (as defined in the Award) in the amount of $ 3,458 4.5
● no
award as to Note II (as defined in the Award) until and at such time as the automatic stay imposed by the United States Bankruptcy
Court as a result of the filing of a petition in bankruptcy by VREH is lifted or the bankruptcy proceeding is terminated;
● an
award in favor of MMG against Vivos Holdings, LLC under Note III (as defined in the Award) in the amount of $ 800 2.5
● an
award in favor of MMG against Dr. Doki under the Personal Guaranty (as defined in the Award) in the amount of $ 2,309 6
● an
award in favor of the Company against Dr. Doki, Mrs. Valleru, Mrs. Janumpally, individually and as Trustee of Judos Trust, and Mr.
Pathuri, as Trustee of Igly Trust, jointly and severally, for contract damages of $ 1,000 1,000
● an
award appointing a Rehabilitative Receiver for the Company under the deadlock situation provisions of Section 11.404(a)(1)(B) of
the Texas Business Organizations Code, the primary function of which is to collect the contract and fraud damages, including costs,
expenses and fees provided in the Award, due to the Company, with matters regarding such receivership to be set forth in a supplemental
award; and
● declaratory
relief in favor of the Company and its officers and directors. With respect
to the receivership, the owners or holders of all of the shares of common stock of the Company received as a result of the conversion
of 1,600 RELIABILITY
INCORPORATED AND SUBSIDIARY NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September
30, 2023 (amounts
in thousands, except per share data) On
May 17, 2023, the Arbitrator issued an Amended and Supplemental Arbitration Award (the “Amended Award”), which included the
following:
● Arbitrator
will appoint a Rehabilitative Receiver in a Supplemental Award under Maryland law;
● an
award in favor of MMG and against VREH under Note II in the amount of $ 835 5.5 On
June 16, 2023, we learned that the principal amount due on 22 Baltimore Road had been satisfied via bankruptcy sale and thus the Fairfax,
Virginia court released the VREH confessed judgement, meaning MMG was no longer listed as a guarantor. Subsequently,
there were two supplemental awards issued by the Arbitrator on May 17, 2023 and October 10, 2023, the latter appointing a Rehabilitative
Receiver whose primary purpose is to collect the Award, and who also has been granted specified powers as described in the 8-K released
on October 19, 2023. On
October 27, 2023, the Arbitrator entered a third Supplemental Award of attorneys’ fees and expenses in favor of Reliability,
Incorporated., individually and as agent for Maslow Media Group, Inc.; management and certain other named persons and parties
against Naveen Doki; Silvija Valleru; Shirisha Janumpally, individually and as Trustee of Judos Trust; and Kaylan Pathuri,
individually and as Trustee of Igly Trust, jointly and severally, in the amount of $1,209 (See Note 10). Additionally,
the Arbitrator stated the actual amounts of interest that would be due will depend on when and how much is collected by the Rehabilitative
Receiver on each award and will leave the determination of such interest to the Rehabilitative Receiver at the time that payments are
made subject to review thereof by the Arbitrator at the request of any party. 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, 2023, the Vivos Debtor balance was $ 5,417 6,348 Basis
of presentation The
unaudited condensed consolidated interim financial statements include the accounts of the Company and all wholly owned divisions, including
its 100 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 RELIABILITY
INCORPORATED AND SUBSIDIARY NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September
30, 2023 (amounts
in thousands, except per share data) the
results of operations for the periods presented have been reflected herein. The results of operations for the periods presented herein
are not necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report
on Form 10-K for the year ended December 31, 2022. Concentration
of Credit Risk For
the nine months ended September 30, 2023, 24.6 13.8 38.4 47.9 the top five customers accounted for 61.8% of revenue versus a year ago, when the top five comprised 66.2% |
