RELIABILITY INC 10-K

ITEM 1. BUSINESS OVERVIEW AND HISTORY Reliability Incorporated (“Reliability” or the “Company”), headquartered in Clarksburg, Maryland, through its wholly owned subsidiary, The Maslow Media Group, Inc. (“Maslow” or “MMG”), provides workforce solutions to its clients consisting primarily of Employer of Record (“EOR”) services, Recruiting and Staffing, and Video and Multimedia Production. The Company focuses on domestic clients but provides services to these clients throughout the world. The Company’s clients are in diverse industries including media, financial services including banking, medical devices, pharmaceuticals, telecommunications, energy, healthcare, and education. Reliability was incorporated under the laws of the State of Texas in 1953. From 1971 to 2007, the Company was principally engaged in the design, manufacture, market, and support of high-performance equipment used to test and condition integrated circuits. This business was shut down in 2007, and the Company was continued as a “shell company” as defined by the Exchange Act, with no operating activities until October 29, 2019, when the Company acquired Maslow. Maslow was founded in 1988 by Linda Maslow whose impetuous drive was recognizing the need for a single resource that could provide qualified production crews to Washington, D.C.’s television, cable, and multimedia outlets. Maslow was later incorporated in Virginia in 1992 and changed its name to our current legal name, The Maslow Media Group, Inc. Maslow’s initial business consisted of providing “script to screen” services which consisted principally of providing production management and services to television, cable, and multimedia outlets. Over time, Maslow expanded its product offerings, adding workforce management solutions, such as Employer of Record (“EOR”), recruiting and staffing services. As Maslow grew, it expanded its geographic footprint by acquiring clients outside of the Washington D.C. metro area. On November 9, 2016, Linda Maslow sold the business to Vivos Holdings, LLC (“Vivos Holdings”) owned by Naveen Doki (“Dr. Doki”) and Silvija Valleru (“Ms. Valleru”). In 2019, Vivos Holdings collaborated on a share swap of Maslow for other Vivos companies with individuals who included but were not limited to Dr. Doki, Shirisha Janumpally (“Mrs. Janumpally”), wife of Dr. Doki, Kalyan Pathuri (“Mr. Pathuri”) husband of Silvija Valleru, Igly Trust, and Judos Trust. These parties 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 (the “Merger”). 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, Maslow became a wholly owned subsidiary of Reliability. 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. Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC, and Mr. Doki are collectively referred to as “Vivos Debtors.” Additionally, Reliability became aware of debt obligations that included MMG as a borrower or guarantor that the Vivos Group failed to disclose to Reliability. This and 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. 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 of 2020 through September of 2021. At that time, arbitration was agreed by both the Vivos Group and MMG. The proceedings began in February 2022 and were completed in March 2022. 4 On August 31, 2022, the arbitrator issued an award (the “Award”) with the Company and MMG prevailing on their claims. The awards included citing fraud damages. Supplemental awards were subsequently issued on May 17, 2023, October 10, 2023, and finally, on October 27, 2023. Summarily, MMG was awarded the totals of all notes the Vivos Group had with MMG for its borrowings, the contracted interest, attorneys’ fees and expenses of $1,209 and a contract damage 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. The May 17, 2023 award also appointed a rehabilitative receiver (the “Receiver”) whose primary function is to collect the contract and fraud damages, including costs, expenses and fees provided in the awards. With respect to the receivership, the Vivos Group owners or holders of all of the shares of common stock of the Company were declared 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. On December 29, 2023, the Circuit Court for Montgomery County Maryland signed orders entering all three arbitration awards as judgments in Reliability’s case against the Vivos Group. These orders became final on January 29, 2024, when the appeal period expired for the defendants. The judgments are good for 12 years and can be enrolled in other states. Reliability has collectible judgments which the Receiver is now eligible to pursue. As of December 31, 2023, the Vivos Debtor balance was $5,501. The Award value in totality currently aggregates $7,710, independent of legal fees and interest. 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 December 31, 2023, there were 300,000,000 shares of the Company’s common stock, no par value per share (the “Company Common Stock,” or “Common Stock”) outstanding. EMPLOYEES As of March 25, 2024, we had 19 team members (staff employees) at our Clarksburg, MD corporate and remote locations. During the fiscal year ended 2023, we assigned approximately 950 field talent workers of which 172 were deemed full-time equivalent (FTE) throughout the year. As of December 31, 2023, 661 active field talent workers and 21 Maslow staff employees had been employed over the past six months. Approximately 15% of our field talent are represented by a labor union. We are not aware of any current labor efforts or plans to formalize or organize any of our other team members or field talent. To date we have not experienced any material labor disruptions. PRODUCTS Employer of Record (“EOR”) Maslow’s EOR product is a unique outsourced managed workforce solution. The costs and compliance obligations relating to the employment of contingent workers are borne by Maslow. These workers are Maslow employees. The client is responsible for maintaining its workplace, but all administrative roles and responsibilities are handled by Maslow as the employer of record. This arrangement provides our clients compliance and legal protection as our expert staff takes responsibility for properly classifying and onboarding employees or independent contractors. Misclassifying an employee as an independent contractor can result in significant costs to the client. The EOR services offered by Maslow consist of the following principal activities: ● state employment registration; ● employee onboarding/offboarding; ● payroll processing; ● benefits offerings and administration; ● workers compensation claim management; ● employee relations; ● regulatory compliance; ● manage State/County/City mandated employee benefits, such as paid safe and sick leave; and ○ Locality mandated training administration ○ Unemployment claims administration ● on site workforce management. 5 Recruiting/Staffing Maslow has been in the staffing business for over thirty years. During that time, Maslow developed, and continues to develop, a large global network of multimedia and video production workers for our media clients, camera crews, and other technical and creative talent. Maslow uses this extensive network to rapidly respond to our clients’ needs for contingent staffing and direct hires. Our staffing services, however, are no longer only focused on media roles. We are also filling contingent and direct hire positions for our clients in the IT, Accounting and Finance, and Administrative areas. Our overall temporary staffing services consist of on-demand or short-term staffing assignments, contract staffing, and on-site management administration. Short-term staffing services assist employers in dealing with employee demands caused by such factors as seasonality, fluctuations in demand for their products and services, vacations, illnesses, parental leave, and special projects. This benefits organizations from incurring the ongoing expense and administrative responsibilities associated with recruiting, hiring, and retaining these employees. More companies are focused on effectively managing variable costs and reducing those which are fixed overhead. The use of short-term staffing services allows companies to utilize a contingent staffing approach for their personnel needs, thereby converting a portion of their fixed personnel costs to a variable expense. Our staffing services place workers with clients for assignments lasting from as little as one day to an indefinite period of time. We offer our clients several levels of staffing services: freelance, contract, temp-to-hire, direct hire, or managed services. Our managed services solution includes building or assuming an existing team and placing an onsite manager, or managers, to help manage the team, including scheduling and logistics. As is common in the staffing industry, the majority of our engagements to provide temporary services to our client are generally of a non-exclusive, short-term nature and subject to termination by our client with little or no notice. In 2021, we began focusing on the placement of full-time equivalent employees on a contingency fee basis as a stand-alone practice. Because the margins are significantly higher, this line of business boosts our overall margins and operating income as explained in Results of Operations. Direct Hire, which we originally titled “Permanent Placement,” margins are much higher than temporary staffing and EOR in that we do not bear employee or 1099 costs for the direct hire placement. The only cost of revenue which is allocated is the relational use of our recruiting software subscriptions. Video/Multimedia Production Maslow continues to be a provider of multimedia and video production solutions for corporate, government, and broadcast clients. We use our large, pre-vetted network of worldwide freelancers with high-level technical and creative skills to respond quickly to our clients’ needs. Our network includes directors of photography, audio engineers, make-up artists, field producers, gaffers and grips, talent, teleprompter operators, and drone operators. Maslow provides video production services to our clients for the purpose of branding videos, documentaries, Public Service Announcements, training modules, live events, webcasts, animation, projects, and more. Our freelance video production teams and clients collaborate with our in-house, full-time Video Production Managers who bring years of experience to every project, and work side-by-side with the team to create the vision and story for the project. In addition to human assets, Maslow sources the latest technical broadcast equipment for television, the internet, and social media. Maslow provides, among others, the following production services: ● pre-production conceptualization of final video deliverables; ● project consultation from scriptwriting to site scouting; ● budget development and management; 6 ● booking and managing of logistics for field and studio teams; ● broadcast level high-definition camera crews and field support worldwide including makeup artists, audio visual support, field producers, and full equipment rental; ● post-production facilities and freelance support including non-linear editors, graphic artists, narrators and actors; ● animation and graphic design development, including whiteboard animation; ● live transmission services from satellite to streaming; and ● management of fully staffed client studios. OUR INDUSTRY Maslow operates within the workforce management and production services industry. The services Maslow provides (managed services, employer of record, staffing, recruiting, and video production services) generally fall within the broader category known as “workforce management” solutions. The temporary staffing portion of the workforce management industry supplies workers to clients. These services offer clients the ability to rapidly match their workforce to changes in business conditions and needs. In some cases, clients can convert fixed labor costs to variable costs. The demand for a flexible workforce continues to grow with competitive and economic pressures on employers to reduce costs, manage payroll compliance risks and respond to changing market conditions. Per Business Wire’s “2024 State of Staffing Report,” the trends expected to have the greatest impact on staffing businesses in 2024 include: AI is transforming staffing, word of mouth drives business growth, and candidate and communication preferences are shifting. We believe the Gig Economy, and Emphasis on Diversity, Equity, and Inclusion (DEI) should be included in trends. The temporary staffing industry is large and highly fragmented with thousands of competing companies. It was estimated that the size of the 2023 U.S. temporary staffing industry was $201.7 billion in 2023, a decrease of 10% from 2022 after two years of post-COVID growth of 34% in 2021 and 20% in 2022. Additionally, the US market is the largest globally with a 33% share. In 2024, the SIA is projecting that the US market will be worth $207.2 billion, which represents approximately a 7% growth. According to the US Bureau of Labor Statistics, the US staffing market is in a healthy state with over 4 million more jobs in August 2023 than in February 2020, up 2.7% over that time period. The revenue increase projected for just the temporary staffing in 2024 is 5%. Per Precision Global Consulting, over half of US companies are planning to increase hiring in the first half of 2024, with two-thirds of employers planning to increase their use of contract professionals. US Hiring Trends to Watch in 2024 are: 1. Increased pay transparency, as more governmental bodies mandate it, and more job seekers already demand it. Thus, it is likely to be a more common requirement as more US states adopt; 2. Hiring for growth: A Robert Half International survey cited company growth and employee turnover as the top reasons they need to add to their teams; 3. More gig workers: an upward trajectory of US workers continue to prefer temporary or temp-to-hire roles as they are viewed as an opportunity to test-drive employers before making a commitment to permanent employment. Others embrace gig work to obtain scheduling flexibility; and 4. Worker classification: Employers who continue to engage 1099 independent contractors long term or in a manner that is more like a w2 relationship and online staffing platforms that provide workers to firms as 1099 independent contractors are undergoing greater scrutiny by governmental agencies. One paradigm which has not changed is staffing companies compete both to recruit and retain a supply of field talent and to attract and retain clients to use these workers. Client demand for temporary staffing services is dependent on the overall strength of the labor market and trends toward greater workforce flexibility. The temporary staffing industry includes several markets focusing on business needs that vary widely in duration of assignment and level of technical specialization. 7 And still, the temporary staffing market is subject to volatility based on overall economic conditions. Historically, in periods of economic growth, the number of companies providing temporary staffing services has increased due to low barriers to entry. During recessionary periods, the number of companies has decreased through consolidation, bankruptcies based on loss of key clients or material reductions of usage by existing clients, or other events. The factors that have an impact on the direction of the economy are high interest rates, continued supply chain problems, inflation, economic sanctions, and unemployment rates. Regardless of the direction of the economy, federal and state laws continue to roll out various protections for employees that involve the compliance of their employers. The complexity of keeping up with this regulatory compliance landscape, particularly for smaller employers and companies requiring workers in multiple states, has provided greater opportunity for EOR solutions. Many states have made significant changes to their employment laws. For example, starting on January 1, 2024, Minnesota instituted a new Earned Sick and Safe Time law which will require employers to provide paid sick leave to Minnesota employees, while California instituted increases to its paid sick leave law. Meanwhile, Illinois enacted paid leave for essentially all employees. Colorado expanded its paid sick leave requirements and updated its laws to redefine the standard for sexual harassment, adding marital status as a protected employment category. OUR CLIENTS Historically, the largest portion of our business has come from three clients, Client A, Client C and Client D. In 2021, those three clients accounted for $11,970, or 45.6%, of 2021 revenue. But over the past two years, that same level of reliance, revenue greater than $3,000 has come from two clients, Client C and Client D, with $8,643 in revenue in 2023 accounting for 40.3% of the revenue. In 2023, Client C became the number one contributor to revenue with $5,395, which was a 6.8% improvement over 2022 when it produced $5,052. In terms of revenue contribution by clients representing 10% or more in revenue, Client C represented 25.1% of our 2023 revenue compared with 19.6% in 2022. Meanwhile, Client D pitched in 15.1% of our 2023 revenue compared with 12.9% in 2022. No other client exceeded 10% of revenues in 2023. Client A, now number 4 in revenue, declined 42.9% to $1,755 as their use of outsourced media personnel decreased coupled with conversions of long-term contract employees to direct hires. From a revenue concentration standpoint, our top five customers represented 64.3% of our revenue in 2023 compared to 66.0% in 2022. From a top 10 perspective, revenue from our top 10 clients totaled $18,526 which represents 86.4% of our revenue in 2023 compared with $22,095, representing 85.9% of revenue in the year ending December 31, 2022. Collectively, Client D (42.2%), Client C (19.9%), and Client A (12.3%) represent 74.4% of accounts receivable as of December 31, 2023. A year ago, five clients had accounts receivable greater than 10% of the balance representing 88.3% of 2022 accounts receivable. GROWTH STRATEGY Maslow’s growth strategy has remained a three-pronged approach with emphasis of the 1) Media Staffing market, 2) Corporate and IT Staffing market, and 3) EOR expansion. Media Staffing margins are healthy in the 19.3% range with $2,751 in revenue for the period ending December 31, 2023, compared to $3,176 in the same period 2022. This represents 12.8% of MMG’s total revenue in 2023 compared to 12.3% in 2022. The IT and Corporate Staffing business segment was combined since our clients’ staffing needs extend beyond into job areas where we are well equipped to recruit talent. Our overall Staffing revenue in 2023 was $3,098 compared to $3,468 in 2022. The objective in 2024 is to increase these levels at a steady linear pace, with an emphasis on the immediate needs of our existing clients and prospects. We have access to talent across the business spectrum, and we need to market non-media roles to our many clients who have staffing needs in other functional areas of their business. 8 Maslow’s EOR approach is to continue to seek media-based opportunities given the transient, contingent, and part-time nature of corporate media, which is conducive to an EOR solution. We believe, however, there is an opportunity to leverage this expertise into other industries. The client acquisition challenge outside of media consists principally of educating prospective clients on the merits of the EOR solution over other options, finding the unique opportunities in each industry or within a corporate client that lends itself for an EOR solution, and competition from other providers of EOR services. The U.S. Department of Labor (DOL) is modifying Wage and Hour Division regulations to replace its analysis for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA). This final ruling will address how to determine whether a worker is properly classified as an employee or independent contractor under the FSLA. In 2022, the DOL proposed a new, yet-to-be-enacted rule on how to determine who is an employee or independent contractor under the FLSA. This new DOL rule will replace the 2021 rule with a multifactor approach intended to reduce the misclassification of employees as independent contractors and provide greater clarity to employers who engage (or wish to engage) with individuals who are in business for themselves. The final ruling is likely to be announced in 2024. This rule change and a more aggressive enforcement thereof could and should create greater incentive for companies to virtually eliminate their risk of noncompliance by outsourcing their 1099 contractors to an EOR company who hires the 1099s, places them on its payroll, and then leases their services to those companies. Given the DOL rule change is more likely than not going to be more restrictive in its classification of a 1099 worker, creates an opportunity for EOR as more desirable solution to companies that are looking for more agile ways of changing the headcount and nature of portions if not all of their workforce in an expeditious and low risk manner. Thus, we expect to explore expanding our EOR segment to enter new industries, particularly those that rely significantly on contractors or freelancers to perform limited time or project-based assignments. To that end, Maslow continues to add industry expertise to our sales, client and human services, and recruiting teams for the purpose of managing the challenging EOR business. Once the Company is able to issue additional shares, we plan to tap the capital markets to pursue an aggressive but disciplined acquisition growth strategy, both in terms of using shares for raising capital and as currency to acquire additional businesses as was our intent when we merged with Reliability in October 2019. We believe that the staffing/EOR segment is fragmented, and while there are several large players in the industry, there are also a sizable number of smaller businesses that would make ideal acquisition targets. These businesses are often limited in geographic scope or are specialized within an industry. Meanwhile, we continue to foster organic growth through new sales to new and existing customers. At present, the Company does not have any authorized shares that are not issued. No shares are expected to become available to the Company until an amendment to the Company’s Certificate of Formation to increase the number of authorized shares of Common Stock or a stock split of the outstanding shares of Common Stock is approved. Such approval may not likely occur until the Vivos Matter is completely resolved. Following the Merger, the Vivos Group, which holds over 80 percent of the issued and outstanding shares of Common Stock, notified the Company that they would not approve an amendment to the Company’s Certificate of Formation to increase the number of authorized, but unissued, shares of Common Stock. As a result, the Company has not been able to execute its business plan. As stated above under “Our Industry,” the trend for staffing expertise in the areas of AI, gig, cloud services, VMS/MSP, plus the expected need in fields like biotech and healthcare, are of interest to Maslow. We will continue to embrace this trend and look to expand our capabilities, which we believe will open new markets for us. Additionally, we will continue to invest in technology and process improvements and resources to grow the staffing side of our business and to ensure that we operate at optimal productivity and performance and are able to quickly adapt if operations scale up. In late 2023, we began using ADP as our payroll processor, which brings workforce management cloud services that enable us to better manage our HR benefits, timecards, payroll records, and applicant tracking. This new partnership was implemented to help improve both our employee and client experiences, while creating operational efficiencies and improved reporting. 9 COMPETITION The staffing services market is highly fractured and competitive with limited barriers to entry. We compete in national, regional, and local markets with full-service and specialized temporary staffing companies. Some of our competitors have significantly more marketing and financial resources than we do. The elevated level of competition in the industry continues to put downward pressure on pricing for services being offered. We expect that the level of competition will remain high. The principal competitive factors in attracting qualified candidates for temporary assignments are pay rates, availability of assignments, duration of assignments, and responsiveness to requests for placement. Client retention is highly predicated on being able to source quality candidates that meet their specific requirements in a timely manner. Although we believe we compete favorably with respect to these factors, we expect competition to continue to increase, which may cause margin compression. While recognizing the need to continue implementation and awareness in human cloud services as referenced, we believe our competitive advantage is underpinned by human relationships and interactions, and that online staffing will never fully replace relationships built on personal touch. This plays into MMG’s strength as our underlying client business relies on these personal relationships such to be successful, leading us to continue to hire career professionals who are able to parlay the emotional intelligence needed with ever evolving modern technology. We see this hybrid of technology and client centricity to be our competitive advantage. SEASONALITY The staffing industry has historically been cyclical, often acting as an indicator of both economic downturns and upswings. Staffing clients tend to use temporary staffing to supplement their existing workforces and generally hire direct workers when long-term demand is expected to increase. Consequently, our revenues tend to increase quickly when the economy begins to grow and, conversely, our revenues may decrease quickly when the economy begins to weaken. Other factors include the timing of recurring annual client events or sporting seasons which last a defined period of time throughout the year. In the past four years, including 2023, the fourth quarter has been our busiest with 29% of our annual revenue being the average. This is because of the fall schedule and year-end projects planned by several large clients. However, in the last two years, our December revenue has been uncharacteristically low as many of our clients are shutting down their media operations during and around the holidays. AVAILABLE INFORMATION We file electronically with the SEC our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. Our website address is www.maslowmedia.com. The information included on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. We will make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we have filed or furnished such material to the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference room at 100 F Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and formation statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Furthermore, we will provide electronic or paper copies of filings free of charge upon written request to our Chief Financial Officer.