Item 5. Market for Registrant’s Common Equity
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS’ MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET
INFORMATION AND HOLDERS
The
Company’s common stock trades in the over-the-counter market under the symbol RLBY. The high and low sale prices for 2020
and 2019 are set forth below. High and Low price is based on last trading day of quarter.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2020
High
$ .2500
$ .1690
$ .1980
$ .0990
Low
$ .0831
$ .0600
$ .0550
$ .0336
2019
High
$ .0600
$ .0900
$ .1850
$ .6900
Low
$ .0300
$ .0360
$ .0360
$ .1600
The
Company paid no cash dividends in 2019 or 2020.
As
of March 16, 2021, the last reported sales price for Company Common Stock was $ .061 per share.
As
of March 16, 2021, there were 565 holders of record of Company Common Stock.
EQUITY
COMPENSATION PLANS
None
RECENT
SALES OF UNREGISTERED SECURITIES
None
SHARE
REPURCHASES
None
ITEM
6. SELECTED FINANCIAL DATA
The
following tables set forth our summary consolidated historical financial data. You should read the information set forth below
in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our consolidated historical financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
The statement of operations data for the fiscal years ended 2020 and 2019 and the balance sheet data as of December 31, 2020 and
2019 set forth below are derived from our audited consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
30
December 31
Balance Sheet Data:
2020
2019
Working capital
$ 5,970
$ 784
Total assets
$ 12,284
$ 14,276
Total outstanding borrowings, net
$ 8,287
$ 8,188
Total other long-term liabilities
$ -
$ 1,745
Stockholders’ equity
$ 1,517
$ 2,227
December 31
Statement of Operation Data:
2020
2019
Revenues
$ 29,202
$ 38,444
Gross profit
$ 3,474
$ 4,069
Selling, general and administrative expenses
$ 4,462
$ 2,985
Operating income (loss)
$ (988 )
$ 1,084
Interest income
$ 8
$ -
Interest Income from related parties
112
68
Interest expense
$ (281 )
$ (438 )
Other expense
$ (1 )
$ (206 )
Income (loss) before income taxes
$ (1,150 )
$ 508
Income tax benefit (expense)
$ 230
$ (156 )
Consolidated net income
$ (920 )
$ 352
Non-consolidated interest in consolidated affiliates
$ 131
$ (157 )
Net income (loss)
$ (789 )
$ 195
December 31
Net Income (Loss) Per Share:
2020
2019
Net income (loss) per share – basic
$ -
$ -
Net income (loss) per share - diluted
$ -
$ -
Weighted average shares outstanding – basic
300,000,000
300,000,000
Weighted average shares outstanding – diluted
300,000,000
300,000,000
December 31
Other Financial Data:
2020
2019
OIBITDA (1)
$ 658
$ 1,348
(1)
We present OIBITDA as a measure that is not in accordance with generally accepted accounting principles (“non-GAAP”),
in this Annual Report on Form 10-K to provide investors with a supplemental measure of our operating performance. We believe that
OIBITDA is a useful performance measure and is employed by us to facilitate comparisons of our operating performance on a consistent
basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our core business
than measures under generally accepted accounting principles (“GAAP”) can provide alone. Our board and management
also use OIBITDA as some of the primary methods for planning and forecasting overall expected performance and for evaluating on
a quarterly and annual basis actual result against such expectations, and as a performance evaluation metric in determining
achievement of certain compensation programs and plans for our management and organization.
31
We
define OIBITDA as operational earnings before interest expense, related party interest, income taxes, depreciation and amortization
expense, loss on early extinguishment of debt and related party debt, transaction fees and costs related to our corporate overhead
which consist mainly of costs associated with being a public company. Omitting interest, taxes and the other items provides a
financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures.
Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to
facilitate investors’ ability to make like comparisons. Similarly, we omit depreciation and amortization because many other
companies likely employ a greater amount of property and intangible assets. We omit corporate or non-operating costs as they are
meant to be allocated against a larger operational base which our business plan outlines. As we grow our operations organically
and through M&A activities these corporate costs are absorbed more equitably, we will use Earnings Before Interest, Taxes,
Depreciation and Amortization (“EBITDA”) as our means of measuring comparable operational performance to other companies
in our industry. We also believe that investors, analysts and other interested parties view our ability to generate OIBITDA as
an important measure of our operating performance and that of other companies in our industry. OIBITDA should not be considered
as an alternative to net income (loss) for the periods indicated as a measure of our performance.
The
use of OIBITDA has limitations as analytical tools, and you should not consider these performance measures in isolation from,
or as an alternative to, GAAP measures such as net income (loss). OIBITDA is not a measure of liquidity under GAAP or otherwise
and is not an alternative to cash flow from continuing operating activities. Our presentation of OIBITDA should not be construed
as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring
items. The limitations of OIBITDA include: (i) it does not reflect our corporate expenditures or future requirements for capital
expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs;
(iii) it does not reflect income tax payments we may be required to make; and (iv) it does not reflect the cash requirements necessary
to service interest or principal payments associated with indebtedness.
To
properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K and the reconciliation to OIBITDA from net income (loss), the most directly comparable financial
measure presented in accordance with GAAP, set forth in the following table. All the items included in the reconciliation from
net income (loss) to OIBITDA are either (i) corporate costs or (ii) items that management does not consider in assessing our on-going
operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance,
management believes that investors may find it useful to assess our operating performance if the measures are presented without
these items because their financial impact may not reflect on-going operating performance.
OIBITDA
calculation comparison for the years ended December 31, 2020 and 2019 is as follows:
December 31
2020
2019
Operating income (loss)
$ (988 )
$ 1,084
Depreciation and amortization
79
25
Corporate, general and administrative
1,567
239
$ 658
$ 1,348
32
Operational
performance comparison for the years ended December 31, 2020 and 2019 is as follows:
December 31
2020
2019
Revenue
$ 29,202
$ 38,444
Gross profit
$ 3,474
$ 4,069
OIBITDA
$ 658
$ 1,348
Net income (loss)
$ (789 )
$ 195
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our results of operations and financial condition should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. 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; our continued inability to issue additional shares of equity securities; 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 Annual Report,
including the “Risk Factors” in Item 1A of this Annual Report 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
reports on Form 8-K.
33
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 this Annual Report on Form 10-K. Our actual results may differ materially from those contained in any
forward-looking statements. You should read the following discussion together with our audited consolidated financial statements
and related notes thereto and other financial information included in this Annual Report on Form 10-K.
Our
financial information may not be indicative of our future performance.
EXECUTIVE
OVERVIEW
Demand
for Maslow EOR services and field talent is dependent upon general economic conditions and labor trends. The United States economic
backdrop during the first quarter 2020 was positive until the rise in COVID 19 cases changed the business landscape profoundly.
Before the pandemic, the United States marked a 50-year unemployment low in February 2020, with just 3.5% of Americans
unemployed. Starting the week of March 9, 2020, numerous U.S. state and federal governments began urging or requiring residents
to stay home and banning large gatherings and restricted travel. Schools were closed and all sporting events across the United
States were either cancelled or postponed indefinitely. Many companies mandated that their employees work from home and discontinued
use of many workers who could not perform their type of work from home (e.g., video, sound, lighting crew, makeup-artists).
Maslow began seeing the effects the week of March 16, 2020 as its contracted employee and freelance payroll hours dropped as much
as 49% during the second quarter. This was because a large portion of Maslow employees were assigned to field, location, or studio
filming projects for our clients that require close contact with others. These projects were placed on indefinite hold and these
employees who saw their hours dramatically reduced. Those who could continue to work from their homes for our clients, have continued
to log hours. Not surprisingly the months of April and May 2020 saw the largest drop in comparative 2020 revenue to 2019 at 49%
($3,379 from $6,673). Second quarter 2020 revenue of $5,197 was 46% off the pace of 2019’s $9,617 comparative. In the third
quarter of 2020, that loss dwindled to approximately 38%, as the Company generated $6,201 in third quarter revenues vs. $10,089
in the same period in 2019.
However,
our fourth quarter revenue of $9,003 was only 13.7% less than the fourth quarter in 2019 when it was $10,438. This was due to
our clients increasing their payrolls as COVID-19 restrictions by state began to wane, and seasonal fall business activities such
as the U.S. elections were held, and the 17-week regular season of the National Football League (“NFL”) season commenced
and proceeded.
We
are hopeful that the dissemination of vaccines will result in resumption of a normally functioning economy which will continue
to enable our clients to return their payrolls to normal levels that in turn, will continue ours and an overall economic rebound.
However, no assurance can be given on if and when this will happen or what impact it will have on our business.
As
far as cash is concerned, in 2020 although COVID-19 exacerbated our already precarious cash position as explained more thoroughly
below (see Liquidity and Capital Resources), we received a $250 short term loan from Triumph at 10% annual percentage rate (“APR”),
in February,2020 and then in May 2020, $5,215 in Payroll Protection Plan (PPP) funds which assisted us in weathering the storm,
especially through the lean months from May through August 2020. By the end of August 2020, we had exhausted our use of PPP funds,
but our working capital remained strong at $5,693.
Because
our larger clients scaled back media related activities in 2020 due to COVID-19, our revenue became more diverse as reliance on
our top 2 clients dropped from 49% in 2019 to 39% in 2020. Four clients with revenues greater than $500 actually increased revenue
in 2020 by $2,111.
Our working capital
though has assumed repayment of Vivos Holdings debt which as of December 31, 2020 was $5,970. We had expected repayment
in early 2020 after Vivos Holdings defaulted on two of their notes at the end of December 2019.
34
From
a technology perspective, we updated our finance and accounting system from Sage 50 which was a client server version, to Sage
Intaact, a cloud-based application. We also bolstered our automated sales and marketing capabilities by adding SaaS applications
Salesforce.com and ZoomInfo. So, although we still do not possess an integrated ERP, we improved our business intelligence, CRM,
Finance and Accounting capabilities.
On February 17, 2020,
after several attempts to negotiate a payment plan with Suresh Venkat Doki (brother of Mr. Doki) and Mr. Doki, Maslow,
as plaintiff, filed a complaint with the Circuit Court of Montgomery County, Maryland against Mr. Doki and other Vivos Debtors.
In February 2020,
the shortage of cash at this juncture resulted from, among other things, the Company being unable to finance IQS invoices through
Triumph because a lien was discovered to exist on IQS assets delaying utilization of Maslow’s much more favorable factoring
relationship with Triumph. As for the lien, it was not disclosed to Maslow by Vivos Holdings, the seller, before or after
the transaction closed. This is when Maslow sought $250 from Triumph and later made a payment to buy its way out of the unfavorable
factoring arrangement and take on other actions to move IQS financing to Triumph.
The
Company’s executives and its board of directors worked together on managing costs and implementing measures to facilitate
the rapid ramp-up of operations once the governmental restrictions began being lifted in June 2020. But we did not see our clients
return to better than 60% of their customary levels of demand until September 2020.
Cash
and working capital began stabilizing in late September 2020 after the PPP funds had been exhausted for their intended purpose,
payroll only in our case, and we began utilizing our factoring facility again, but not the 93% level we have over the past 2 years.
2021
and Beyond
The
continued impact of this pandemic cannot be precisely predicted. We believe that the short to mid-term impacts on how our clients
conduct work will continue to be aligned with our strategic path.
As
a result, we have continued to move forward with our diversified offerings and future specialization staffing strategy, updating
our already expert operating model and organizing our business to more easily acquire and maintain client accounts.
We
believe given the changing nature in specialized staffing due to the pandemic that there likes a greater opportunity to expand
our EOR business as it offers businesses of all types and industries, more flexibility in on and off boarding employees as well
as managing 1099 risk. As far as staffing, media staffing, we believe it will grow but there are also opportunities to get into
staffing specialties which represent areas where we see the most rebound for a robust demand. We will continue to focus on growing
the contingent staffing side of our business. Our IT Staffing brand, Intelligent Quality Solutions, will be a primary focus moving
forward. Bringing on new segments whether organically or through M&A reflect our desire to shift our portfolio toward a higher
margin, higher value proposition.
COMPANY
OVERVIEW
Maslow
is a national provider of employer of record, recruiting and staffing services, consisting of media and IT resources. We provide
services to client primarily within the United States of America.
Our
services consist of:
●
Employer
of Record (“EOR”): A unique workforce solution for any organization who seeks efficiency in employee administrative
management including payroll and benefits, labor risk associated with compliance with federal-state and local regulations
including Fair Labor Standards Act (“FLSA”), in onboarding and offboarding employees, and in managing benefit
costs.
●
Recruiting
and Staffing: Staffing covering a wide variety of specialties. Currently Media and Information Technology (“IT”)
encompass most of our placements.
●
Video
and Multimedia Production: With 32 years of experience, the Company’s subsidiary, Maslow, offer script to screen expertise
including producers, audio engineers, editors, broadcasters, makeup artists, camera crews, Gaffers and grips, drone operators
and more.
35
The
Company’s subsidiary, The Maslow Media Group, Inc. (“Maslow”) is currently the only earning entity for the business.
After our Merger in October 2019, non-operational expenses (e.g., public company fees, D&O insurance, investor relations,
etc.) were assigned at the corporate level. This enables a more pristine focused view of the operational side of the business
we refer to as Operational Income Before Depreciation, Interest, and Amortization.
RESULTS
OF OPERATIONS
Maslow
had revenues totaling $29,202 in 2020, which was a 24% decrease over $38,444 in 2019. IQS, our IT Staffing business segment,
which was acquired on December 1, 2019, accounted for $2,571, or 8.8%. The COVID-19 impact to revenue was undoubtedly profound
but difficult to measure given there is no way to know what level of growth existing clients may have had or revenue potential
of new clients.
Overall,
Maslow lost $7,611 to accounts with declining revenues => $500, but conversely added $2,111 from new or growing accounts that
had at least $500 more in revenue in 2020 from 2019. AT&T’s DirecTV cancelled Sirius-XM programming in February 2020
that we believe had a negative impact of $3,400 on revenue. Overall DirecTV year over year revenue declined by $4,759.
If
we assume that those clients who had revenues in 2019 and zero in 2020 and include those with steep declines > $500 and 2020
revenues < $10, the total in attrition is approximately $3,874. This attrition may not be permanent as many clients hire Maslow
for special events. The decision to leave Maslow or not use Maslow services in 2020 by these three clients was not attributable
to Maslow’s pricing, service, or performance.
Overall,
the top 10 clients represented $24,242 which is 82% of 2020 revenues, which was a decrease by approximately $7,249 to 2019’s
top 10 at approximately $31,491. $24 in rebates were issued in December 2020 which was $24 less than a year ago when they were
$48 in 2019.
The
following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage
of revenues, and have been derived from our consolidated financial statements.
December 31
2020
2019
Revenue
$ 29,202
$ 38,444
Cost of services
25,728
34,375
Gross profit
3,474
4,069
Selling, general and administrative expenses
4,462
2,985
Operating income (loss)
(988 )
1,084
Interest income
8
-
Interest income from related parties
112
68
Interest expense
(281 )
(438 )
Other expense
(1 )
(206 )
Income/(loss) before taxes
(1,150 )
508
Income tax benefit (expense)
230
(156 )
Non-controlling interest in consolidated affiliates
131
(157 )
Net income (loss)
$ (789 )
$ 195
The
2019 consolidated statement of income includes only 1 month of IQS operations versus 12 months in 2020.
36
Revenues:
By Segment
2020
%
of Revenue
2019
%
of Revenue
EOR
$ 23,564
80.7 %
$ 34,452
89.6 %
Recruiting and Staffing
4,478
15.3 %
2,190
5.7 %
Video and Multimedia Production
1,125
3.9 %
1,641
4.3 %
Other
35
.1 %
161
0.4 %
Total Revenue
$ 29,202
100 %
$ 38,444
100.0 %
Employer
of Record (EOR) Revenues : EOR represented 80.7% of our revenue in 2020 as opposed to 89.6% in 2019. This can be attributed
to this business segment being hit the hardest by COVID-19 as our large corporate clients curtailed non-essential media activities
and AT&T announced the cancellation of two (2) live anchor multiple hour DirecTV sports programs, which we estimate reduced
revenue by $4,000. Additionally, our IT staffing business which we enjoyed for its first full year, contributed 8% of revenue,
thus also reducing EOR concentration.
Recruiting
and Staffing Revenues : Staffing revenues buoyed by having a full year of IT Staffing capabilities increased revenue by
$2,288, or 104%. The IT Staffing (IQS) contributing the vast majority, but Media Staffing despite COVID-19 headwinds, managed
to eke out a slight increase in 2020 of $17 over 2019, finishing year with $1,904 in revenue.
IQS,
our IT Staffing division although contributing $2,571 in revenue and $784 in gross profit (30.5%) in 2020, saw a decline in business
from its 2019 full year levels (including pre-acquisition as it was acquired December 2019) of $3,206 in revenue and $908 in gross
profit. These are declines at levels of $723 or 28% and $131 or 17% in revenue and gross profit, respectively. The decline in
IQS business was most poignant in Q4 with revenue coming in at $478 compared to $751 in Q4 2019; a drop of 36.4%. When IQS Q4
2020 revenue is compared to Q1 2020, the decline is comparative at 39.5%. The drop in revenue began in April 2020 due to COVID-19
as the next 6 months saw an approximate decline of 27% compared to same period a year ago. The decline however was not as steep
as the EOR, Video Production and Media Staffing comparative declines because a few clients had essential business exceptions and
accommodations to keep their IT projects active. The reason there was no bounce back for this business segment in Q4 was a combination
of losing 7 staffing positions to permanent offers and what we believe is the temporary loss of two clients, Inspire Brands and
Accruent who both began implementing temporary hiring freezes in early 2020. This resulted in a $745 revenue loss in 2020. Conversely,
Abbott Labs through vendor management firm Tapfin, had a 57% increase in revenues going from $691 in 2019 to $1,083 in 2020.
Video
and Multimedia Production Revenues : Video Production by nature of the freelance work our clients undertake, did see a
decline in revenue by $516 or 31.4%, from $1,641 in 2019 to revenues of $1,125 in 2020.
Gross
Profit: Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll
taxes, benefits, payroll-related insurance, union benefits, field talent and reimbursable costs for out-of-pocket items.
Overall,
our gross profit declined $595, or 14.6% to $3,474 from $4,069 in 2019; but the decline was not proportionate and as steep as
our revenue’s decline by 24%. This was due primarily to an increase in higher margin activities such as IT staffing which
garnered 30.5% as it represented 8.8% of the overall revenue. This coupled with a reduction in the low margin EOR business at
9.2%and increase in Media Staffing at 22.8% drove an overall margin of 11.9% which was 1.3% higher than 2019’s margin of
10.6%.
Selling,
General and Administrative Expenses (“SG&A”) : SG&A expenses increased $1,477, or 49.5%,
to $4,462, $1,567 of which were related to non-operational corporate costs, with $1,109 of which were public company based and
$446 were for outside legal fees associated with our Vivos Group dispute. Otherwise, our operational SG&A increase
in 2020 over 2019 was only $63.
37
Operational
SG&A increases were in salary of $381 in 2020 over 2019, which can be attributed to having IQS IT Staffing unit for full year
which added approximately $453 to 2020’s salary demonstrating that when comparing MMG pre IQS salaries from 2020 to 2019,
there was actually a savings of $72. The savings in salaries was attained despite adding business development personnel.
IQS
salaries were trimmed to be in line with reduction in revenue, which included a change in senior management. For the first
8 months of 2020, SG&A salary, payroll tax and benefits averaged $40 a month, in contrast to the last 5 months of 2020 where
salaries averaged $28, without a loss in productivity. This staff realignment was implemented to position this division for success
and growth moving forward.
Non-operational
corporate costs for 2020 totaled $1,567, which are not comparable to 2019 as these costs only were classified as such after the
Company went public via the reverse merger in October 2019. The 2020 cost drivers were salary, payroll tax, and benefits at $738
and D&O insurance totaling $115. The former consists of our general counsel and allocated executive and senior management
loaded salaries.
Depreciation
and Amortization: Depreciation and amortization charges were $79 compared to $25 in 2019, with the increase coming from
capitalized software and IQS brand name and client relationships amortization.
Interest
Income : Interest income from related parties increased from $68 to $120, as a result of the Vivos Holdings 2019
tax note accruing interest for a full year.
Other
Expense: Other expenses decreased by $205 from $206 to $1 primarily due to elimination of these non- essential, non-operational
costs the Company had incurred in 2019.
Interest
Expense: Interest expense, decreased by $157 from $438 to $281 as reliance on factoring was minimized as a benefit of
having PPP loan proceeds, managing expenses downward and business picking up in Q4. Additionally, interest accrual at 12% on $890
in convertible notes began subsiding as notes were repaid from July through September 2020. Conversely PPP loan interest was carried
at 1% starting in May 2020 through end of the year, and interest of 10% on a $250 loan from Triumph Capital.
Income
Taxes: Income tax expense improved from $156 in income tax expense to an income tax benefit of $230 due to the net loss
recorded in 2020.
LIQUIDITY
AND CAPITAL RESOURCES
Our
working capital requirements are driven predominantly by EOR field talent payments, SG&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
Triumph Business Capital (TBC). TBC 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%. As a result of the impact of the COVID-19 pandemic, our clients may be
more likely to be delinquent in their payments. As of December 31, 2020, 63% of our $6,629 were current, 26% 1 to 30 days past
due, 8% between 31 and 60 days past due and 3% ($202) greater than 60 days.
Our
primary sources of liquidity are cash generated from operations via accounts receivable and borrowings under our Factoring
Facility with Triumph 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 Triumph no longer provides 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 on a consistent schedule;
our cash inflows do not typically align with these required payments, resulting in temporary cash challenges, which is why in
the past we have employed factoring.
38
Vivos
Debtors as of December 31, 2020, had notes receivable totaling $4,258 including default on a $3,000 promissory note and
on a $750 tax obligation in December 2019. After numerous failed collection attempts, on February 17, 2020 the Company initiated
an action in the Circuit Court of Montgomery County Maryland against Naveen Doki and the Vivos Holdings for nonpayment.
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
May 5, 2020, Maslow received $5,216 loan through the Paycheck Protection Program (the “PPP”) with a term of two (2)
years and an interest rate of 1% per annum. The PPP provides that the Company may apply for forgiveness of this loan if the loan
proceeds were used for payroll and certain other specified operating expenses while maintaining specified headcount requirements.
The accrued interest on the PPP loan as of December 31, 2020 was $34.
On
June 5, 2020, The Paycheck Protection Program Flexibility Act (the “PPPF Act”) went into effect providing more flexibility
to participants in the PPP which included extending the time to begin repayment of the PPP loan until the amount of forgiveness,
if any, is determined, which could be as late as December 31, 2020. The Company may apply for forgiveness earlier if they determine
that doing so will maximize the amount of loan forgiveness.
On
December 22, 2020, the United States Congress passed an omnibus spending bill (the December relief bill) that included significant
revisions and additions to the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief and Economic Security
Act (CARES Act), and previously amended by the Paycheck Protection Program Flexibility Act (PPP Flexibility Act). President Trump
signed the bill on December 27, 2020. The December relief bill permits expenses paid with PPP loan funds to be deductible.
On
December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues ‎Act (the “PPP2 Act”)
contained in the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”) ‎was enacted. The PPP2 Act
and 2021 Appropriations Act included several changes to the forgiveness ‎deadline process and deadlines allowing PPP borrowers
up to 10 months to apply for loan forgiveness after the covered period ends.
The
Company utilized PPP funds for their intended purpose, in this case for payroll only following guidelines for wage earners >
$100.
The
funds bolstered our working capital and enabled us to bring back employees and continue to serve our clients even though their
requirements had lessened.
As
of December 31, 2020, our working capital was $5,970, compared to $784 a year ago as the PPP funds enabled the Company to build
A/R reserves since PPP funds were employed to pay salaries of both outsourced and SG&A employees, while approximately 58%
of 2019 revenue was still attained and collectible during the covered 24-week period between May and October 2020.
We
anticipate approximately $300 in additional SG&A costs in 2021, when compared with 2020 relating to increase in sales and
marketing head count to meet growth objectives.
39
A
summary of our operating, investing and financing activities are shown in the following table:
December 31
2020
2019
Net cash provided by (used in) operating activities
$ (2,070 )
$ 1
Net cash used in investing activities
(50 )
(39 )
Net cash provided by financing activities
1,915
284
Net change in cash and cash equivalents
$ (205 )
$ 246
Operating
Activities
Cash
employed by operating activities consists of net income (loss), adjusted for non-cash items, including depreciation and amortization,
and the effect of working capital changes. The primary drivers of cash inflows and outflows are factoring, accounts receivable
and accrued payroll and expenses.
During
2020, net cash used in operating activities was ($2,070), a decrease of $2,071 compared with $1 for 2019. This decrease is primarily
attributable to our net loss of ($789), and changes in income tax payable by ($525), accrued payroll ($455), and accounts payable
($401).
Investing
Activities
Cash
used in investing activities consists primarily of cash paid for capital expenditures.
Financing
Activities
Cash
provided by financing activities in 2020 was $1,915 as compared to cash used for same purpose totaling $284 in 2019. The increase
was due to the Company receiving $5,216 in PPP offset by $853 in repayments from the issuance of convertible notes starting in
June of 2019 and return of cash flows from short-term borrowing via our factoring vehicle.
OFF-BALANCE
SHEET ARRANGEMENTS
We
had no material off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our operations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
We
have identified the policies listed below as critical to our business and the understanding of our results of operations. For
a detailed discussion of the application of these and other accounting policies, see Note 3 in the Notes to the Consolidated Financial
Statements of this Annual Report on Form 10-K. The preparation of consolidated financial statements in conformity with GAAP, requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses
during the reporting periods.
On
an ongoing basis, management evaluates its estimates, including those related to revenue recognition, collectability of accounts
receivable, impairment of goodwill and intangible assets, contingencies, litigation, income taxes, stock option expense, and other
liabilities. Management based its estimates and judgments on historical experiences and on various other factors believed to be
reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result
in differences from the estimated amounts in the consolidated financial statements.
40
REVENUE
RECOGNITION
On
January 1, 2019 the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers, for all
open contracts and related amendments as of December 31, 2019 using the modified retrospective method. The adoption had no impact
to the reported results.
The
Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria
must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligation(s)
in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligation(s) in the contract;
and (5) recognize revenue when or as the Company satisfies a performance obligation.
The
Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the
parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client
and the services offered.
We
derive our revenues from three segments: EOR, Recruiting and Staffing, and Video and Multimedia Production. We provide temporary
staffing and permanent placement services. Revenues are recognized when promised services are delivered to client, in an amount
that reflects the consideration we expect to be entitled to in exchange for those services. Revenues as presented on the consolidated
statements of operations represent services rendered to client less variable consideration, such as sales adjustments and allowances.
Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and equivalent amounts of reimbursable
expenses are included in cost of services.
We
record revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses.
We have concluded that gross reporting is appropriate because we (i) have the risk of identifying and hiring qualified workers,
(ii) have the discretion to select the workers and establish their price and duties and (iii) we bear the risk for services that
are not fully paid for by client.
Temporary
staffing revenues is accounted for as a single performance obligation satisfied over time because the customer simultaneously
receives and consumes the benefits of the Company’s performance on an hourly basis. The contracts stipulate weekly billing,
and the Company has elected the “as invoiced” practical expedient to recognize revenue based on the hours incurred
at the contractual rate as we have the right to payment in an amount that corresponds directly with the value of performance completed
to date.
Permanent
placement revenue is recognized on the date the candidate’s full-time employment with the customer has commenced. The customer
is invoiced on the start date, and the contract stipulates payment due under varying terms, typically 90 days. The contract with
the customer stipulates a guarantee period whereby the Company will replace the candidate for free of charge if the employee is
terminated within that 90-day period. As such, the Company’s performance obligations are satisfied upon commencement of
the employment, at which point control has transferred to the customer.
Allowances,
recorded as a liability, are established to estimate these losses. Fees to client are generally calculated as a percentage of
the new worker’s annual compensation. No fees for permanent placement services are charged to employment candidates.
Video
and Multimedia Production revenues from contracts with client are recognized in the amount to which we have a right to invoice
when the services are rendered by our field talent.
41
INTANGIBLE
ASSETS
The
Company holds intangible assets with finite lives. Intangible assets with finite useful lives are amortized over their respective
estimated useful lives, ranging from three to ten years, based on a pattern in which the economic benefit of the respective intangible
asset is realized.
Identifiable
intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs are
used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the
present worth and anticipated future benefits of the identifiable intangible assets were discounted back to their net present
value.
The
Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible
asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible
assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company determined
that there were no impairment indicators for these assets during the year ended December 31, 2020.
GOODWILL
Goodwill
represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including
identifiable intangible asset values in a business combination. The Company reviews goodwill for impairment annually during the
fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.
Based on annual testing, the Company has determined that there was no goodwill impairment during the year ended December 31, 2020.
The
Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than
50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill. If after qualitatively
assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value
of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of
events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less
than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting
unit with its carrying amount, including goodwill, as discussed below.
In
assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, the Company assesses relevant
events and circumstances that could affect the significant inputs used to determine the fair value.
The
quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset
with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, the Company shall recognize an
impairment loss in an amount equal to that excess.
The
quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each
reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired,
and no further testing is required. If the fair value of the reporting unit is less than the carrying value, The Company must
perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit’s
fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets,
in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was
being acquired in a business combination. If the implied fair value of the reporting unit’s goodwill is less than the carrying
value, the difference is recorded as an impairment loss.
42
RECENT
ACCOUNTING PRONOUCEMENTS
For
a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition,
refer to Note 3 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.