RELIABILITY INC 10-Q

Item 1. Financial Statements RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS (amounts in thousands, except per share data) 2023 2022 September 30, December 31, 2023 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 751 227 Trade receivables, net of allowance for doubtful accounts 3,094 6,337 Retention credit receivable 10 1,219 Notes receivable from related parties 5,417 5,251 Prepaid expenses and other current assets 358 430 Total current assets 9,630 13,464 Property, plant, and equipment, net 16 26 Other intangible assets 3 - Total assets $ 9,649 13,490 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Factoring liability $ - 2,619 Accounts payable 414 698 Accrued expenses 318 339 Accrued payroll 677 981 Deferred revenue 176 176 Income taxes payable 5 6 Total current liabilities 1,590 4,819 Total liabilities 1,590 4,819 Commitment and contingencies (Note 6) - - Subsequent events (Note 10) - - SHAREHOLDERS’ EQUITY Common stock, without par value, 300,000,000 shares authorized, 300,000,000 issued and outstanding as of September 30, 2023 and as of December 31, 2022 Additional paid-in capital 750 750 Retained earnings 7,309 7,921 Total shareholders’ equity 8,059 8,671 Total liabilities and shareholders’ equity $ 9,649 13,490 The accompanying notes are an integral part of these statements. 3 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) 2023 2022 For the Three Months Ended September 30, 2023 2022 Revenue earned Service revenue $ 5,341 6,464 Cost of revenue Cost of revenue 4,569 5,573 Gross profit 772 891 Selling, general, and administrative expenses 998 941 Operating loss ( 226 ) ( 50 ) Other income (expense) Interest income from related parties 68 23 Interest income 7 63 Interest expense ( 12 ) ( 46 ) Other income (expense) ( 13 ) 210 Income (loss) before income tax expense ( 176 ) 200 Income tax expense - ( 91 ) Consolidated net income (loss) $ ( 176 ) 109 Net loss per share: Basic $ 0.00 0.00 Diluted $ 0.00 0.00 Share used in per share computation: Basic 300,000,000 300,000,000 Diluted 300,000,000 300,000,000 The accompanying notes are an integral part of these statements. 4 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) 2023 2022 For the Nine Months Ended September 30, 2023 2022 Revenue earned Service revenue $ 15,992 18,729 Cost of revenue Cost of revenue 13,769 16,222 Gross profit 2,223 2,507 Selling, general, and administrative expenses 2,843 3,343 Operating loss ( 620 ) ( 836 ) Other income (expense) Interest income from related parties 200 196 Interest income 21 - Interest expense ( 77 ) ( 111 ) Other income (expense) ( 133 ) 210 Loss before income tax expense ( 609 ) ( 541 ) Income (loss) before income tax expense ( 609 ) ( 541 ) Income tax expense ( 3 ) ( 117 ) Consolidated net loss $ ( 612 ) ( 658 ) Consolidated net income (loss) $ ( 612 ) ( 658 ) Net loss per share: Basic $ 0.00 $ 0.00 Diluted $ 0.00 $ 0.00 Shares used in per share computation: Basic 300,000,000 300,000,000 Diluted 300,000,000 300,000,000 The accompanying notes are an integral part of these statements. 5 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY For the Nine months Ended September 30, 2023 and 2022 (amounts in thousands, except per share data) Shares Amount Capital Earnings Equity Additional Common Stock Paid-in Retained Total Shares Amount Capital Earnings Equity Balance, December 31, 2021 300,000,000 $ - $ 750 $ 8,660 $ 9,410 Net Loss - - - ( 658 ) ( 658 ) Balance, September 30, 2022 300,000,000 $ - $ 750 $ 8,002 $ 8,752 Balance, December 31, 2022 300,000,000 $ - $ 750 $ 7,921 $ 8,671 Balance 300,000,000 $ - $ 750 $ 7,921 $ 8,671 Net Loss - - - ( 612 ) ( 612 ) Balance, September 30, 2023 300,000,000 $ - $ 750 $ 7,309 $ 8,059 Balance 300,000,000 $ - $ 750 $ 7,309 $ 8,059 The accompanying notes are an integral part of these statements. 6 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) 2023 2022 For the Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 612 ) ( 658 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 14 23 Accrued interest ( 165 ) ( 172 ) Changes in operating assets and liabilities: Trade receivables 3,243 2,634 Retention credit receivable 1,195 - Other receivable 14 - Prepaid expenses and other current assets 72 ( 35 ) Accounts payable ( 284 ) ( 828 ) Accrued payroll ( 304 ) ( 627 ) Accrued expenses ( 21 ) ( 59 ) Other liabilities - ( 1 ) Income taxes payable ( 1 ) ( 241 ) Net cash provided by operating activities $ 3,151 36 Cash flows from investing activities: Purchase of fixed assets ( 8 ) ( 1 ) Net cash used in investing activities $ ( 8 ) ( 1 ) Cash flows from financing activities: Net borrowing/(repayment) of line-of-credit ( 2,619 ) 1,068 Net cash provided by (used in) financing activities $ ( 2,619 ) 1,068 Net increase in cash and cash equivalents 524 1,103 Cash and cash equivalents, beginning of year 227 24 Cash and cash equivalents, end of year $ 751 1,127 The accompanying notes are an integral part of these statements. 7 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued (amounts in thousands) For the Nine Months Ended September 30, Supplemental disclosures of cash flow information: 2023 2022 Cash paid during the year for: Interest $ 77 111 Income taxes $ 5 735 8 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (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 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 % 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. 9 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 in 2016, and by the end of 2019, the balance had reached $ 3,418 , which included a $ 3,000 guarantee from Dr. Naveen Doki. (See Note 8 for more details). 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 , with interest thereon from September 30, 2022 at the rate of 4.5 % per year; ● 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 , with interest thereon from September 30, 2022 at the rate of 2.5 % per year, plus collection costs, including reasonable attorneys’ fees, incurred in the effort to collect Note III; ● an award in favor of MMG against Dr. Doki under the Personal Guaranty (as defined in the Award) in the amount of $ 2,309 , plus interest thereon at the rate of 6 % per year from the date of the Award; ● 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 , to be satisfied by the transfer of their shares of the Company common stock to the Company equal in value to $ 1,000 , valued as of the date of the Award, in accordance with the provisions of Section 9.06(d) of the Merger Agreement; ● 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 shares of common stock of MMG owed by Dr. Doki and Mrs. Valleru under the Merger Agreement shall not be entitled to vote any of those shares at any annual or special meeting of the shareholders of the Company during the period of the receivership. Upon the completion of the receiver’s primary function of collecting damages due to the Company, the receivership shall terminate and the restrictions on the rights of the shareholders of the Company imposed by the Award shall be lifted. 10 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 as of September 30, 2022 with interest thereafter at the rate of 5.5 % per year; and 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 . The arbitration award covering all bulleted items above currently totals $ 6,348 independent of legal fees, interest, and other fees (see Note 2 below). This amount represents a reduction in earlier estimates as a result of the clarifications issued by the Arbitrator in the Amended Award on May 17, 2023. Basis of presentation The unaudited condensed 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 11 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 % of revenue came from one customer, and 13.8 % from a second customer. Combined, this totals 38.4 % of revenue. Last year, these two customers plus a third, accounted for 47.9 % of revenue for the same period ended September 30, 2022. This year, the top five customers accounted for 61.8% of revenue versus a year ago, when the top five comprised 66.2% . No other client has exceeded 10% of revenues for the nine months ended September 30, 2023 or 2022. NOTE 2. MANAGEMENT’S PLAN Although the Company continues to experience net operating losses, management believes it has the ability to continue as a going concern and meet its financial obligation as they become due in 2023 and beyond. The factors impacting this view include, but are not limited to, the following: ● cash flow forecasts showing sufficient cash and working capital for at least the next 12 months; ● the prospect of receiving the amounts awarded in the arbitration hearing in 2023, which include $ 5,417 in notes receivable from related parties, plus awards for fraud, totaling $ 1,000 for contract damages, additional interest, and legal fees after the supplemental award is finalized; ● the reduction in legal fees associated with Vivos Matter year to date at $ 460 plus future savings compared to a year ago; ● new sales plan implementation by recently hired Vice President of Sales, who has experience and success in managing contingent and direct hire staffing organizations; and ● additional factoring line availability of up to 93 % of unfactored invoices, which as of November 1, 2023, could be converted to approximately $ 2,468 in cash. As a result of the foregoing, the Company believes that it has sufficient cash to meet its financial obligations for the next 12 months and beyond as they become due. NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Adopted Accounting Pronouncements The Company does not believe any other recently issued but not yet effective accounting pronouncement, if adopted, would have a material effect on its present or future consolidated financial statements. 12 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (amounts in thousands, except per share data) NOTE 4. ACCOUNTS RECEIVABLE Accounts receivable can be broken down as follows: SCHEDULE OF ACCOUNTS RECEIVABLE September 30, 2023 December 31, 2022 Accounts receivable, unfactored $ 2,653 3,131 Unbilled receivables 441 587 Accounts receivable, factored - 2,619 Total Accounts Receivable $ 3,094 6,337 NOTE 5. DEBT Tax Liabilities As of September 30, 2023, the Company’s overall tax liability was $ 5 compared to $ 6 on December 31, 2022. Factoring Facility The Company has a factoring and security agreement with Gulf Coast Bank and Trust (“Gulf”), which enables the Company to receive advances on its accounts receivable (i.e., invoices) through Gulf to fund growth and operations. The proceeds of this agreement are most frequently used to pay operating costs of the business, which include employee salaries, vendor payments, and overhead expenses. Our arrangement calls for interest at prime plus 2 % and includes an advance rate of 18 basis points. The amount of an invoice eligible for sale to Gulf is 93%. This agreement is month-to-month. The Company continues to be obligated to meet certain financial covenants in respect to invoicing and reserve account balance. 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 August 1, 2023, the required amount was 10 %. Any excess of the reserve amount is paid to the Company as requested. If a reserve shortfall exists for a period of ten days, the Company is required to make payment to Gulf for the shortage. Accounts receivables were sold with full recourse. Proceeds from the sale of receivables were $ 0 for the three-month period ending September 30, 2023, compared to $ 3,429 for the same period ending on September 30, 2022, and $ 3,297 compared to $ 10,388 for the nine months ended September 30, 2023 and 2022, respectively. The total outstanding balance under the recourse contract was $ 0 on September 30, 2023, compared to $ 2,619 as of December 31, 2022. The factoring facility is collateralized by substantially all the assets of the Company. In the event of a default, the Factor may demand that the Company repurchase the receivable or debit the reserve account. Total finance line fees for the three months ended September 30, 2023 and 2022 were $ 0 and $ 46 , respectively. For the nine months ended September 30, 2023 and 2022, finance fees totaled $ 44 and $ 111 , respectively. 13 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (amounts in thousands, except per share data) NOTE 6. COMMITMENTS AND CONTINGENCIES There are a number of debts and confessions of judgement (“COJ”) related to the Vivos Group that included Maslow as a co-signer or guarantor at some stage in the Vivos Group debt process from November 2016 through October 29, 2019, when Vivos Holdings, LLC owned Maslow. All known debts disclosed to Maslow management and Reliability prior to the Merger were addressed by various safeguards such as the Liquidation Agreement, and the Naveen Doki personal guarantee. However, there were certain non-disclosures by Vivos Holdings, LLC that are included below. . In September 2022, MMG learned that Vivos IT, LLC filed a lawsuit against Second Wind Consultants (“SWC”) in May 2019, which included MMG as a plaintiff. The lawsuit included claims of fraud in inducement and unjust enrichment against SWC. The five parties suing SWC, included Vivos, LLC, The Maslow Media Group, Suresh Venkat Doki, Naveen Doki, and Silvija Valleru. The lawsuit related to a debt restructuring services agreement secured by Suresh Doki, Naveen Doki and Silvija Valleru to assist the following then owned Vivos entities: Maslow Media Group, Inc.; Health Care Resources Network, Inc.; Mettler & Michael, Inc.; 360 IT Professionals, Inc.; and US IT Solutions, Inc. SWC countersued all plaintiffs on September 30, 2019, seeking to collect the balance of $ 402 not paid by the Vivos Group. These suits were not disclosed to MMG management or to Reliability before the Merger closed on October 29, 2019. Maslow retained Counsel and filed a motion to include all original parties to the SWC agreement, as four of the original parties were not in the original filings (HCRN 360 IT, and US IT & Media Solutions). On September 11, 2023, we learned our motion was denied, however, on September 27, we filed a motion for reconsideration on grounds our counsel felt were compelling. To date MMG has spent $ 55 on legal fees related to this matter. At the present time, the Company is uncertain as to whether any of the above items will have a material impact on their consolidated financial statements. NOTE 7. EQUITY The Company’s authorized capital stock consists of 300,000,000 shares of common stock, with no par value. All authorized shares of Company Common Stock are issued and outstanding. NOTE 8. RELATED PARTY TRANSACTIONS Stock Purchase Agreement On November 9, 2016, Vivos Holdings, LLC, the former owner of MMG, acquired 100 % of MMG through a stock acquisition exchange for a purchase price of $ 1,750 , of which: (i) $ 1,400 was paid at settlement with proceeds from MMG and (ii) a promissory note to pay the remaining $ 350 (“Vivos/MMG Purchase Agreement”). The promissory note was to be paid in 24 equal installments, including interest at 4.5%, in the amount of approximately $15, commencing nine months after closing, with the last payment on March 1, 2019. These payments were paid by MMG on behalf of the Vivos Debtors. The Vivos Debtors subsequently entered into a promissory note receivable with MMG, described below, for the full stock purchase price. No payment has ever been made against this note and between 2018 to present, there has been $ 2,503 in additional borrowings. As of September 30, 2023 and December 31, 2022, the receivable totaled $ 5,417 and $ 5,251 , respectively. This is not inclusive of the additional amounts awarded in the arbitration. 14 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (amounts in thousands, except per share data) Notes Receivable The Company has notes receivable from Vivos Holdings, LLC and VREH, both related party affiliates due to their ownership percentage in the Company. Per Code of Virginia, the legal rate of interest shall be implied when there is an obligation to pay interest and no express contract to pay interest at a specified rate. However, it was determined in 2021 that the two notes had clauses capping the default interest at 4.5 % and 5.5 %, respectively. The rate adjustment for the periods allowed was made using the eligible agreement rates. In connection with the Vivos/MMG Purchase Agreement, on November 15, 2016, MMG executed a promissory note receivable with Vivos Holdings, LLC in the amount of $ 1,400 . As defined by the Vivos/MMG Purchase Agreement, the loan consisted of two periods, whereby in the first period no principal or interest payments were required. During the second loan period, interest was supposed to have been paid in 20 equal consecutive payments, quarterly. Principal plus any unpaid interest was due September 20, 2023. As of September 30, 2023, the total outstanding balance was $ 3,698 , which includes accrued interest receivable of $ 51 for the period. On November 15, 2017, MMG executed an intercompany promissory note receivable with VREH in the amount of $ 772 . There were two loan periods defined. During the first loan period, interest accrued monthly and a new loan amount of $781 was subject to a second loan period. As of September 30, 2023, the total outstanding balance was $ 893 , which includes accrued interest receivable of $ 12 for the period. On June 12, 2019, MMG entered into a Personal Guaranty agreement with Dr. Doki, pursuant to which Dr. 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 the Company’s Common Stock, and therefore is a related party. As of February 2020, the Company filed a lawsuit against the majority shareholder, pursuant to the personal guaranty agreement for defaulting on the outstanding notes receivable. Between November 2016 and September 30, 2023, the Vivos Group borrowed an additional $ 2,547 , included in the note receivable, totaling $ 3,647 . 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, MMG has the right to declare the entire unpaid balance of the note due and payable. The note was secured by 30,000,000 shares of Company Common Stock, was due and payable upon a default by Vivos. In addition, both Naveen Doki and Silvija Valleru personally guaranteed the repayment of the note by the Vivos Group. Naveen Doki and Silvija Valleru were beneficial owners of Vivos and are also 5 % or greater beneficial owners of Company Common Stock, which is qualified by the Merger Arbitration complaint. As of September 30, 2023, the total outstanding balance was $ 825 , which includes 2023 interest of $ 5 for the period. Debt Settlement Agreements On July 21, 2022, Maslow settled the obligation which Vivos Holdings, LLC had obligated Maslow to a note in July 2018, with Libertas Funding, LLC and Kinetic which a portion was paid and subsequently included in the additional borrowing cited above. 15 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (amounts in thousands, except per share data) Related Party Relationships On October 29, 2019, prior to the Merger, pursuant to the Merger Agreement, Naveen Doki and Silvija Valleru became beneficial owners of 206,606,528 and 51,652,908 shares of RLBY Common Stock, respectively, equal to 68.9 % and 17.2 % of the total number of shares of RLBY Common Stock outstanding after giving effect to the Merger, respectively. The Company’s arbitration award thus far includes relinquishment of shares of the Company common stock equal in value to $ 1,000 , valued as of the date of the Award, in accordance with the provisions of Section 9.06(d) of the Merger Agreement. In 2019, the Company entered into transactions with two executive officers, Nick Tsahalis and Mark Speck, of the Company, resulting in the issuance of warrants to purchase 163,232 shares each of common stock. The term “warrant” herein refers to warrants issued by MMG and assumed by the Company as a result of the Merger. The terms of all warrants are the same other than as to the number of shares covered thereby. The warrant may be exercised at any time or from time to time during the period commencing at 10:00 a.m. Eastern time on first business day following the completion of the Qualified Financing (as defined below) and expiring at 5:00 p.m. Eastern time on the fifth annual anniversary thereof (the “Exercise Period”). For purposes herein, a “Qualified Financing” means the issuance by the Company, other than certain excluded issuances of shares of Common Stock, in one transaction or series of related transactions, which transaction(s) result in aggregate gross proceeds actually received by the Company of at least $ 5,000 . The exercise price per full share of the Company common stock shall be 120 % of the average sale price of the Company common stock across all transactions constituting a part of the Qualified Financing, with equitable adjustments being made for any splits, combinations or dividends relating to the Company common stock, or combinations, recapitalization, reclassifications, extraordinary distributions and similar events, that occur following one transaction constituting a part of the Qualified Financing and prior to one or more other transactions constituting a part of the Qualified Financing (the “Exercise Price”). Convertible note warrants were not valued and included as liability on the balance sheet because of uncertainty around their pricing, value, and low probability at this juncture in receiving the $ 5,000 trigger. NOTE 9. BUSINESS SEGMENTS The Company operates within four industry segments: EOR, Recruiting and Staffing, Direct Hire, and Video Production. The EOR segment provides media field talent to a host of large corporate customers in all 50 states. The Recruiting and Staffing segment provides skilled Media, IT, accounting and finance, human resources (HR), and general administrative talent on a nationwide basis for customers in a myriad of industries. Direct Hire fulfills direct placement requests by MMG clients for a wide variety of posts, including administrative, media, and IT professionals. The Video and Multimedia Production segment provides script-to-screen services for corporate, government, and non-profit clients, globally. The following table provides a reconciliation of revenue by reportable segment to consolidated results for the three months ended September 30, 2023 and 2022, respectively: SCHEDULE OF RECONCILIATION OF REVENUE AND OPERATING INCOME BY REPORTABLE SEGMENT TO CONSOLIDATED RESULTS 2023 2022 Revenue: EOR $ 4,467 5,494 Recruiting and Staffing 710 848 Direct Hire 64 60 Video and Multimedia Production 100 62 Total Revenue $ 5,341 6,464 16 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (amounts in thousands, except per share data) The following table provides a reconciliation of revenue by reportable segment to consolidated results for the nine months ended September 30, 2023 and 2022, respectively: 2023 2022 Revenue: EOR $ 13,240 15,783 Recruiting and Staffing 2,338 2,671 Direct Hire 115 99 Video and Multimedia Production 299 176 Total $ 15,992 18,729 NOTE 10. SUBSEQUENT EVENTS The Company has evaluated subsequent events through November 14, 2023, the date on which the unaudited condensed consolidated financial statements were available to be issued. Based upon this evaluation, management has determined that no material subsequent events have occurred that would require recognition in or disclosures in the accompanying unaudited condensed consolidated financial statements, except as follows: On October 10, 2023, the Arbitrator issued a Supplemental Award appointing Rehabilitative Receiver who is appointed to collect the Award. 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 . 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. On November 7, 2023 MMG filed a petition to confirm the arbitration award with Montgomery County Circuit Court in Rockville, Maryland. 17