RELIABILITY INC 10-Q

Item 1. Legal Proceedings For a description of our legal proceedings, see Note 6, Commitments and Contingencies, of the Notes to Unaudited Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q. From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. Except as set forth below, we are not aware of any such legal proceedings or claims against the Company. On or about February 17, 2020, the Company, as plaintiff, filed a complaint with the Circuit Court of Montgomery County, Maryland against Vivos Holdings, LLC, VREH and Naveen Doki (the “Defendants”), to enforce MMG’s rights under certain promissory notes and a personal guarantee made by the defendants (the “Debt Collection Suit”). The aggregate amount of these obligations as of the balance sheet date is approximately $4,308. The case is proceeding. The Company believes that it will be granted a judgment in its favor. MMG has vigorously pursued this litigation and atrial on this matter is scheduled to begin in the Circuit Court of Montgomery County, Maryland, on October 4, 2021. On or about May 6, 2020, the Defendants filed with the Circuit Court of Montgomery County, Maryland a Counterclaim and Third-Party Complaint for Damages, Declaratory and Injunctive Relief and Jury Demand (the “Vivos Default Counterclaim”), The Company believes that the Counterclaim has no merit. The Company continues to vigorously defended itself and its indemnified officers, directors and other parties as permitted by the Company’s organizational documents. The Company and the other Counterclaim defendants have moved to have the Debt Collection Suit and the Counterclaim stayed pending the outcome of the Arbitration described below in Intent to Arbitrate. A full trial covering the Vivos Group note defaults and the Vivos Group’s countersuit which was originally scheduled for March 2021, will take place starting on October 4, 2021. On or about June 5, 2020, the Company submitted a Claimant’s Notice of Intention to Arbitrate and Demand For Arbitration (the “Arbitration”) with the American Arbitration Association in New York, and to the Respondents thereto: Naveen Doki; Silvija Valleru; Shirisha Janumpally (individually and in her capacity as trustee of Judos Trust); Kalyan Pathuri (individually in his capacity as trustee of Igly Trust) and Federal Systems (the “Respondents”). The Arbitration alleges that the Respondents breached the Merger Agreement in a number of significant respects and committed fraud in connection with the Merger. The Company is seeking damages which if granted will likely be the remedy set forth within the merger agreement which is in whole or in part shares of Company Common Stock received by the Respondents in connection with the Merger. The Company has brought a motion to compel the Arbitration which is currently being decided by the Federal Courts in New York. The Company believes a strong basis for the motion exists, but no assurance can be given that it will be granted. Regardless, the Company intends to pursue claims under the Merger Agreement in whatever venue is required. On June 12, 2020, Igly Trust, a Vivos entity, asked the Texas court for an injunction requiring the Company to provide a shareholder list and to hold a shareholder meeting. On October 20, 2020, the Texas court denied the injunction but, incongruously, dismissed all the Vivos plaintiffs for lack of personal jurisdiction. The Company appealed the dismissal because the court had jurisdiction over Igly Trust once it made affirmative claims in Texas and because the Court’s order denying the injunction is an important precedent for establishing that the directors under Texas law retain control of shareholder lists and determining the timing of shareholder meetings. 25 After an extension was granted to Reliability’s “reply brief,” on June 2nd, 2021, Reliability, Incorporated, Maslow Media Group, Inc, Nick Tsahalis and Mark Speck filed an appellant’s brief in the Fourteenth District of Texas, Houston Texas to challenge the court’s prior ruling granting a special appearance to Igly Trust and to the Doki Shareholders. A response to the filed appellant brief has not yet been received. On December 23, 2020, after an evidentiary hearing before the Circuit Court for Montgomery County, Maryland, a judge denied a motion by Vivos Holdings, LLC, VREH, Doki, Kaylan Pathuri (“Pathuri”), Judos Trust by Shirisha Janumpally, its trustee (“Judos”) and Igly Trust by Kaylan Pathuri, its trustee, (“Igly”) to compel a shareholder meeting based on the facts presented at trial. The judge also commented that, based on the evidence presented, management was performing its fiduciary duties to protect the Company despite adverse circumstances. This same judge will be presiding over a full trial regarding Company’s lawsuit to enforce the repayment of notes and the Vivos Group counterclaim, in a trial starting on October 4, 2021. On January 20, 2021, Defendants and Counter/Third-Party Plaintiffs, Vivos Holdings, LLC (“Vivos”), Vivos Real Estate Holdings, LLC (“VREH”), Dr. Naveen Doki (“Doki”), Kaylan Pathuri (“Pathuri”), Igly Trust (“Igly”), Judos Trust (“Judos”), by counsel, filed a Notice of Appeal with the Circuit Court for Montgomery County, Maryland denying their Motion for Preliminary Injunction signed on December 23, 2020. On August 9 , 2021, Reliability filed an additional claim in the Debt Collection Suit and Vivos Default Counterclaim in the Circuit Court of Montgomery County, Maryland against Doki, Valleru, Pathuri, Janumpally, Igly, and Judos, asserting that the Respondents breached the Merger Agreement in a number of significant respects and potentially committed fraud in connection with the Merger. The following legal proceedings where Vivos Group borrowings impacting MMG: On September 28, 2018, Credit Cash filed a complaint against MMG, Vivos, Vivos Acquisitions, LLC, Dr. Doki, Dr. Valleru (the “Parties”) and other defendants in the United States Circuit Court of Montgomery County, Maryland for the District of New Jersey for, among other things, breach of contract of the MMG and HCRN Credit Facilities and their respective guaranties in relation to the November 15, 2017, agreement (the “DNJ Action”). On October 30, 2018, Credit Cash filed a motion to intervene in an action pending in New York State, Monroe County, filed by HCRN and LE Finance, LLC against the Parties, and other defendants (“NY State Action”). On December 10, 2018, the Parties entered into a settlement agreement for the purpose of settling certain claims related to the DNJ Action only. Pursuant to the settlement agreement, certain repayment terms were agreed upon between Credit Cash and the Parties, but Credit Cash did not relinquish the right to pursue any claims related to the NY State Action, nor to pursue any remedies against any of the parties in relation to the November 15, 2017, agreement. Certain of the Vivos Group executed and delivered to MMG that certain Agreement for the Contingent Liquidation of the Common Stock of Maslow Media Group, Inc., dated as of October 28, 2019 (the “Liquidation Agreement”), pursuant to which such Vivos Group pledged to MMG the shares of Company Common Stock they received in the Merger to provide the capital required to satisfy the Parties’ obligations under the Settlement Agreements. Vivos Group misrepresented upon the execution of the Liquidation Agreement to MMG the status of its obligations under the Settlement Agreement, which were, in fact, then in default. To date these Vivos Group have not cooperated with the Company to monetize those shares as contemplated by the Liquidation Agreement. The Company will take appropriate action to enforce its rights under the Liquidation Agreement, which actions will be dictated in part by the outcome of the Arbitration. On or about March 16, 2020, Credit Cash entered its New Jersey confession of judgment with the Circuit Court of Montgomery County, Maryland. Healthcare Resource Network Complaint: On or about February 17, 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 Mr. Naveen Doki, to enforce MMG’s rights under certain promissory notes and a personal guarantee made by the defendants. The case is proceeding. The Company believes that it will be granted a judgment in its favor. MMG intends to continue to vigorously pursue this litigation. On September 3, 2020, MMG and HCRN entered into a Tolling Agreement pursuant to which HCRN dismissed MMG from this litigation without prejudice and agreed to forebear filing a new complaint or initiating any lawsuit or other legal proceeding against MMG until January 31, 2022. On or about May 5, 2020, Kinetic Direct Funding domesticated a foreign judgement in the Montgomery County Circuit Court system again Health Care Resources Network (HCRN), Maslow Media Group, US IT Solutions Inc., 360 IT Professionals, Alliance Micro, Inc. and Naveen Doki. This foreign judgement from the State of New York relates to loans the Vivos Group took out by adding Maslow Media Group as additional collateral. This loan is currently in default. Foreign Judgement total is $579. On July 21, MMG came to an agreement with Kinetic and Libertas for $475 to release MMG from being obligated to this Vivos Group debt. (See Note 10). On August 9 , 2021, Reliability filed an additional claim in the Debt Collection Suit and Vivos Default Counterclaim in the Circuit Court of Montgomery County, Maryland against Doki, Valleru, Pathuri, Janumpally, Igly, and Judos, asserting that the Respondents breached the Merger Agreement in a number of significant respects and potentially committed fraud in connection with the Merger. 26