RELIABILITY INC 10-Q

Item 1. Legal Proceedings On or about February 25, 2020, the Company, as plaintiff, filed a complaint with the Circuit Court of Montgomery County, Maryland against Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC, and Dr. Doki, to enforce Maslow’s rights under certain promissory notes and a personal guarantee made by the defendants. 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, that the Respondents breached the Merger Agreement in a number of significant respects and committed fraud in connection with the Merger. On September 7, 2021, the Company entered in Arbitration and Tolling Agreements with alleged shareholder Naveen Doki, M.D., and his affiliates and all other persons who were parties to the pending litigation previously reported in the Texas, New York and Maryland courts and before the American Arbitration Association. The Agreements call for the stay or dismissal of the pending litigation, with the parties agreeing to resolve their disputes before a single arbitrator in Maryland. The parties also agreed to maintain the status quo in corporate governance and related matters pending a final non-appealable judgment confirming any award in arbitration. The parties also signed a Tolling Agreement to toll the statute of limitations following the dismissal of a pending litigation. On August 2, 2022, VREH filed for Chapter 11 Bankruptcy Protection in the District Court of Maryland. This action prevented the Arbitrator from providing any ruling relating to Note II in the arbitration case at the time of his award. On August 24, 2022, the Company filed a motion to stay the VREH Bankruptcy filing to allow the Arbitrator to rule on the claims against VREH. The motion to lift the stay was granted by the court on September 16, 2022 after the initial award by the Arbitrator. On August 31, 2022, the Arbitrator issued an award (the “Award”) with the Company with MMG prevailing on their claims. The Company and MMG were awarded the following: ● an award in favor of MMG against Vivos 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 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 Naveen 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 Naveen, Valleru, Janumpally, individually and as Trustee of Judos Trust, and 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. 23 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 Naveen and 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. 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; and ● 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. 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 as follows: ● appoint Board members at each annual meeting, until such time the receiver’s appointment terminates, ● appoint or approve the auditor, ● approve reasonable compensation and incentive plans for employees, except officers, of Reliability, and ● approve any other matter that is in the ordinary course of business. The Receiver shall vote in accordance with the Board’s recommendations for all actions taken by it in the ordinary course of business. The Receiver shall not have power to take any action to alter or change: ● the Board of Directors of Reliability, ● the corporate governance or structure of Reliability or Maslow, and ● the authorized or issued stock of Reliability. 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. The following legal proceedings where Vivos Group borrowings impact MMG: In September 2022, MMG learned that Vivos IT, LLC lawsuit against Second Wind Consultants (“SWC”) in May 2019 included MMG as a plaintiff. The lawsuit brought claims of Fraud in the inducement, unjust enrichment and other monetary claims against SWC. The 5 parties suing SWC, included Vivos IT, LLC, 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 $403 not paid by the Vivos Group. This was not disclosed to Maslow Management or to Reliability before the Merger closed on October 29, 2019. 24 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. The motion is currently being considered by the court. To date MMG has spent $65 on legal fees related to this matter.