RELIABILITY INC 10-K

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: 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. 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. 28 EXECUTIVE OVERVIEW Although 2023 saw decreases in revenue by $4,274 and gross profits by $455 to those earned in 2022, our operating margin had a favorable variance by $156 to 2022, as SG&A expenses were lowered by $611 to $3,788. This resulted in a reduction in our operating loss of $749 compared to $906 in 2022. With Other Income consisting of one-time nonoperational costs of $179 and state tax costs at $14, the consolidated net loss landed on $740 which was $1 below 2022’s net loss of $739. As expected, two large clients combined for a steep decline of $3,583 that accounted for approximately 84% of our $4,274, or 16.6%, unfavorable revenue variance to 2022’s $25,725. One lost sports programming to a competitor in a bid that resulted in about $2,100 a year revenue loss for MMG. The $21,451 in revenue in 2023 was also $4,795, or 17.2%, less than our 2021 revenue total of $26,246. Gross profits did not dip quite proportionately, as lower costs of revenue resulted in 2023 gross profit of $3,039, $455 less than the $3,494 in gross profit earned in 2022 a 13% variance. The 2023 gross profit of $3,039 is off the pace by $227, or 6.9%, of the $3,266 in gross profit produced in 2021. Gross profit margins (“GM”) however were up for the fifth year in a row reaching 14.2% in 2023 versus 13.6% in 2022 and 12.4% in 2021. This represents a 7.6% compounded annual growth rate (CAGR) over the last four of those years. This consistent improvement of gross margins over the past four years was driven by several factors including contract extension price increases, changes in volume discounts, billing for added overhead, our client mix where the change has been favorable to company terms, and our service mix in which a greater share of our business has shifted to higher margin services. But in 2023, the catalyst driving the margin up 80 basis points is the performance of our Direct Hire business, which delivered $199 in revenue at a gross margin of 90.8%. These were both highs since we began increasing our focus and volumes in this area of the business in 2021. Although we did not have arbitration preparation and hearings in 2023 (see Note 1) absorbing our leadership’s focus as it did in 2022, the progression of legal activities in finalizing the awards, including the petition for legal fees, which was honored, filing with the court system, and dealing with the lawsuit related to the Vivos Group and Second Wind (See Item 1A), which was discovered too late to be included in the arbitration proceedings, was still quite time consuming. The time, effort, and expense put into these efforts detracted from officer focus on sales, strategy, and our ability to fully drive stockholder value. Demand for Maslow EOR services has not recovered to pre-2020 COVID-19 (“COVID”) levels as the foundational Media clients businesses were profoundly impacted by the stay at home and vaccination mandates. Consequently, our business has not only failed to recover to 2019 levels, our revenues declined over the past four years, as a myriad of events outside our control took place, including conversions from our payroll to clients’ payroll, programming discontinued, media budgets curtailed for various reasons, or in one case a loss of a government contract which we subbed, because our client failed to re-bid without notification. Additionally, we had just $356 in new client revenue in 2023, which was only marginally better than the $333 new client revenue produced in 2022. We did see an increase in the 2022 new client revenue in 2023 as it rose to $404, and one 2023 new client is among our top 25 revenue producers this year. Although these new clients have not produced large swaths of revenue over the past two years, they have the potential in the future to be $500- to $1,000- a-year clients in that there are a few sizable news networks and trade organizations that we expect to see staffing increases in 2024 and beyond (see below). Despite the revenue decline, MMG’s gross profit margins continue to increase year-over-year for the fifth straight year from 10.3% in 2018 to 14.2% in 2023. This softened the gross profit variance from being as high as revenue and at $3,039 landing $455 off 2022’s $3,494 by 13.0%. EOR revenue decline of $4,066 made up 95.1% of the $4,274 variance between 2023 and 2022. Our non-EOR revenue consisting of Contingent and Direct Hire Staffing and Video Production tallied $3,623, which was $208, or 5.4%, off of revenues produced in 2022. 29 Margin performance continued to flourish as a $100 increase, $199 from $99 in 2022, in direct hire revenues had the largest impact on triggering gross margins reaching 14.2% for the year ending December 31, 2023. Because this additional $100 created approximately $91 gross profit, the 2023 company annual gross margins improved to 14.2%, otherwise it would have landed on 13.8%. The other contributor leading to a 20-basis point increase in gross margins was EOR, which reached an all-time high of 12.2% - a twenty-point increase over 12.0% in 2022. This was in stark contrast to the EOR gross margin average in 2021 of 9.8%. But what could be managed somewhat proportionately in 2023 was our SG&A, which decreased by $611, or 13.9%, enabling our operating income to improve on 2022’s total by $156 to a loss of $749 versus $906 in 2022. SG&A reduction drivers were lower salaries, taxes, and benefits (referred to as “Loaded salaries”), with operational loaded payroll lower by $75, legal and other fees associated with the Vivos Matter down $434 from 2022, business insurance and commercial legal down $46 and $39, respectively. As far as cash is concerned, in 2023 our cash position remained relatively strong due to our receiving $1,209 in Employee Retention Credits (ERC) which was our final payment for this program. This coupled with a new financing agreement with American Express (See Item 7: Liquidity and Capital Resources below) enabled MMG not only to accelerate cash that otherwise would not be paid for approximately 90 days but allows for proceeds to immediately booked against the accounts receivable as opposed to crediting factoring as short-term debt. When compared with GAAP accounting for factoring, the difference is profound. This change resulted in our Current Ratio rising to 5.27 from 2.79, and our Quick ratio to 2.06 from 1.36, from 2023 to 2022, respectively. Our working capital, which includes repayment of Vivos Debtors as of December 31, 2023, was $7,913 versus $8,645 on December 31, 2022. Our adjusted working capital excluding the $5,501 in Vivos Debtor notes is $2,412. 2024 and Beyond In late December 2023 in time for the first payroll of 2024, we formally transitioned our HR and Payroll solution from Paycom to ADP, a more comprehensive and robust HR and Payroll solution. This transition will allow us to provide cloud-based tools to our dispersed employee population and our national clients providing them with a more seamless experience. In addition, ADP’s tools will automate processes that were previously manual and provide our corporate teams with an integrated Recruiting, Onboarding, Benefits, Performance Management, Scheduling, Time Keeping, Payroll, and Manager and Employee self-service solutions to support clients workforce management needs. ADP’s reporting, predictive analytics, and proactive compliance features will allow our corporate teams to foresee trends and make informed decisions to better partner with our clients. We feel strongly after the implementation pain has subsided, our ADP tech stack will add value and save immeasurable time for MMG, our employees, and our clients. ADP’s Workforce Now is just one of several reasonably priced innovative technologies we are investing in starting in 2024. Although we had stated a year ago, we would bring on additional staffing professionals to grow the staffing side of our business, we only progressed modestly. Our business development with some rewards that were not realized during 2023 as a couple clients expected to be top 10 revenue producers (revenue greater than $500 a year) not beginning staffing activities with us in 2023. But in 2024, we are beginning to see a ramp up in business from one customer who signed a $1,500 Statement of Work (“SOW”) with us at the end of 2022 through 2025. Additionally, we are seeing improvements in our pipeline with new opportunities than we have ever had, and existing large clients giving us assurances that their volumes will continue to increase at even more rapid levels in 2024. We expect our Direct Hire business to grow in 2024 as a number of existing clients took advantage of our expertise and speed of filling roles outside the Media space. This success should enable us to fill even more diverse functional openings in 2024 and beyond. As we do the same for our other large clients, so should our opportunity to increase our requisition volume and convert to fills and revenue. EOR has been the Company’s primary revenue source for many years, and it represented 83.1% in 2023. Our challenge over the past four years has been maintaining the large base of clients and employees post COVID as the Media functions in some large corporates especially have cut back on media activities and personnel. Despite lower payrolls for some, the challenge with EOR is the complexity of managing HR and Payroll for a myriad group of clients who vary significantly in uniformity and have unique needs that absorb our staff’s attention. This client service intensity is somewhat unique to Media EOR than to other EOR providers due to the idiosyncratic ways that employee time is scheduled, tracked, recorded, and managed. This complexity is why we have added client service and HR personnel and technology to best service our gold star clients. 30 Hence, our goal is to maintain and build on our legacy client foundational relationships while putting our foot on the proverbial gas pedal to develop much more contingent contract staffing and direct hires. And in doing so, our goal is to increase our staffing business by supporting other functions outside of Media such as Administrative, Accounting and Finance, HR, and IT. To that end, we will add two more staffing-experienced sales representatives in the first half of 2024. Virtual staffing is no longer a limited niche for certain companies and certain positions. Virtual scenarios are also favored by Generation Z, which values work-life balance as one of the most crucial factors when deciding on a company for which to work. Considering the benefits that remote working offers, and the keen interest shown by employees from different age groups, we believe that remote working will be prevalent in 2024 and beyond. This paradigm, however, should not adversely impact MMG, in that whether jobs are filled virtually or not, MMG has the pipeline of talent to fill these diversified roles. Furthermore, we still believe given the changing nature in specialized staffing, there exists a greater opportunity to expand our EOR business as it offers businesses of all types and industries, more flexibility in on- and offboarding employees, as well as managing 1099 risk. As for staffing outside of Media, we believe it will grow, but there are also opportunities to get into staffing specialties which represent areas where we see the most rebound or a robust demand. This shift in focus to staffing will also have a positive impact on gross margins as we saw 19.3% gross margins in 2023 for Media personnel and 23.1% for IT. We expect blended rates to be in low 20s in the future, which with volume will continue our ascent in converting a much higher percentage of our revenues to gross profit. As a result, we continued to move forward with our diversified offerings with an eye on our future specialization staffing strategy, updating our already expert operating model, and organizing our business to maximize acquisition and retention of client accounts. Once the Vivos Matter judgements are recovered, the Company may contemplate moving forward with its original plans to increase outstanding shares by authorizing new ones or via a reverse split to acquire synergistic staffing companies to grow more quickly. The Company would also like to move to the OTCQB and/or OTCQX on its way to eventually being listed on the NASDAQ Exchange. The Company continues to work towards meeting all of the requirements to pursue listing the OTCQB or OTCQX exchanges. Once collection of the Vivos Debtors has taken place, MMG may consider moving forward with this initiative. COMPANY OVERVIEW Maslow is a national provider of employer of record (EOR), recruiting and staffing services, consisting of media, IT, and administrative 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. One major difference in this service offering is that our customers usually source the talent and MMG hires and leases the employees to our customers. ● Recruiting and Staffing: Staffing covering a wide variety of specialties: media, information technology (“IT”), accounting and finance, HR, marketing, sales, and other administrative personnel. ● Video and Multimedia Production: With 35 years of experience, the Company’s subsidiary, Maslow, offers script-to-screen expertise including producers, audio engineers, editors, broadcasters, makeup artists, camera crews, Gaffers and grips, drone operators, and more. ● Direct Hire: We strategically recruit and fill a variety of fulltime roles for our customers which is only limited by our recruiting capabilities which are already quite diverse. The Company’s subsidiary, The Maslow Media Group, Inc., is currently the only operating entity for the business. After our Merger in October 2019, nonoperational 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 Interest, Taxes, Depreciation, and Amortization (OIBITDA). 31 RESULTS OF OPERATIONS Maslow had revenues totaling $21,451 in 2023, which was a $4,274 decrease (16.6%) from the $25,725 in revenue produced in 2022. The decline can be attributed to four predominantly EOR clients which curtailed revenue by $4,066 in 2023 when compared to same period ending December 31, 2022. These clients simply scaled back their media budgets and/or converted and/or replaced our staff to and with their own. Conversely, we added $1,098 from 10 accounts that had equal or greater than $50 in revenue in 2023 from 2022. Client C stepped up their programs by 6.8% to approximately $5.4 million in revenue as did several other clients in the insurance, education, and healthcare space. From a revenue contribution standpoint, our top 10 clients represented $18,526 in revenue, which is 86.4% of our $21,451 in 2023 revenue. This is an increase in top 10 revenue reliance as in 2022 the top 10 represented 85.9%, as $22,095 came from $25,725 of revenue. $32 in rebates were issued in December 2023, which was $1 more than a year ago when they were $31 in 2022. 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 were derived from our consolidated financial statements. December 31, 2023 2022 Revenue $ 21,451 $ 25,725 Cost of services 18,412 22,231 Gross profit 3,039 3,494 Selling, general and administrative expenses 3,788 4,400 Operating loss (749 ) (906 ) Interest income 25 53 Interest income from related parties 269 232 Interest expense (92 ) (171 ) Other income (expense) (179 ) 223 Income/(loss) before taxes (726 ) (569 ) Income tax benefit (expense) (14 ) (170 ) Net Income (Loss) $ (740 ) $ (739 ) Revenues: By Segment 2023 % of Revenue 2022 % of Revenue EOR $ 17,828 83.1 % $ 21,894 85.1 % Recruiting and Staffing 3,098 14.4 % 3,468 13.5 % Video and Multimedia Production 326 1.5 % 264 1.0 % Direct Hire 199 0.9 % 99 0.4 % Total Revenue $ 21,451 100 % $ 25,725 100 % Employer of Record (EOR) Revenues : EOR represented 83.1% of our revenue in 2023 as opposed to 85.1% in 2022. The change was driven more by the EOR revenue decline by $4,066 than a shift to our other business segments. However, those business segments saw a decline of $208, or 4.9%, versus 18.7% for EOR 2023 to 2022. Our number one revenue producer (Client C), which is an EOR client, increased its revenue by $343 but clients A and B had a combined drop in revenue by ($3,583) due to converted employees, lost programming, and otherwise weaker demand. Two mid-sized clients communicated to us during the year their need to reduce their media budget as a needed cost savings measure, dropping their 2023 revenues by $460 and $154, respectively, when compared to 2022. 32 Recruiting and Staffing Revenues : Staffing revenues slid by $370, or 10.7%, to $3,098. IT Staffing increased by $54, while our Media Staffing division was down $424, or 13.3%, to our 2022 performance. Media Staffing at $2,752 represented 12.8% of total 2023 annual revenue, whereas it represented 12.3% of 2022 annual revenue. The loss of two government agencies and a government contract as a sub, which it elected not to rebid on, accounted for $384. Outside of these account losses, our other 20 staffing clients, plus a new one, combined for a year-over-year increase in Recruiting and Staffing revenue of $14. Video and Multimedia Production Revenues : Video Production, which includes managed services and project freelance work, increased its revenue in 2023 by $62 to $326 when compared to 2022’s $264. Video Production represented 1.5% of 2023 revenue, a 50% improvement in segment share when it represented 1% of revenue in 2022. Gross Profit: Gross profit represents revenues from services less cost of services expenses also referred to as Cost of Revenue (COR), which consist of payroll, payroll taxes, benefits, payroll-related insurance, union benefits, field talent, allocation of recruiting Software as a Service (“SaaS”), and reimbursable costs for out-of-pocket items. Our Gross Profits in 2023 of $3,039 were short of 2022’s $3,494 by $455, a 13.0% negative variance. Our gross margin is the percentage of revenue after cost of revenue (COR). Gross margins increased 60 basis points in 2023 to 14.2% from 13.6% in 2022. The catalyst in 2023 was the $100 increase in our Direct Hire business which accounted for the 40-basis point difference. EOR’s 20 basis point increase to 12.2 accounted for the remaining 20 points of the 60-point increase in 2023 from 2022. This was the fifth consecutive year in which MMG was able to increase its gross margins, with the compounded annual growth rate (CAGR) of such increases being 6.6%. Since 2019, the CAGR is 7.6%. Our EOR margins, which a year ago increased 0.2%, or 2.2 points, from 9.8% in 2021 to 12.0% in 2022, continued to remain strong at 12.2% versus 12.0% in 2022. EOR margins, which were 9.2% in 2020 and 9.8% in 2021, rose 32.6% and 24.9%, respectively, due to price changes to several clients at their contract renewal, a mix in client revenue, favoring those with higher contractual margins, increased use of higher margin W2 over 1099 workers, and equipment rental pricing change which enabled our gross margins to flex. Non-EOR margin performance climbed 1.5% to 23.9% from 22.4% when comparing 2023 to 2022. However, Media Staffing was off 2022’s 20.3% GM to 2023’s 19.3% as the loss of one of the aforementioned clients alone prevented Staffing margins from reaching 20.6% which otherwise would have exceeded 2022’s 20.3% performance. Video Production and Direct Hire margins at 23.0% and 90.8% in 2023 were only slightly off 2022’s 23.5% and 90.9%, respectively. Selling, General and Administrative Expenses (“SG&A”): SG&A expenses decreased $611 to $3,788 in 2023 compared to $4,400 in SG&A in 2022 largely because of lowering of legal and other professional service fees associated with the Vivos Matter by $434, $440 when looking at commercial and Vivos Matter legal costs only; while loaded salaries were $187 favorable to 2022, and liability insurance was lowered by $46. The loaded salaries reduction was driven by bonuses being lowered by $156, commissions by $46, and salaries by $37. Corporate non-operational costs totaling $788 were $663, or 45.7%, favorable when compared to the same period ending December 31, 2022 when they reached $1,451. Corporate non-operational costs consist predominantly of public company costs as well as those related to the Vivos Matter. 33 From an MMG operational perspective, SG&A was up $51 in 2023 from 2022. Salaries, inclusive of commissions, payroll tax, and bonus rose $25 in the year ending December 31, 2023 compared to same period in 2022. $75 of the increase were salary based alone as we bolstered client services, sales, and HR personnel while making sacrifices elsewhere. The salary increases by department were driven by Client Service loaded salaries up $59 as we added headcount to focus on existing and new clients. Our Human Resource (HR) department which includes operational field support rose $48 through headcount growth. Conversely, Sales and Marketing department loaded salaries were favorable by $36 because commission payments were down by $63, accounting and finance down $5, and Video Production loaded salaries reduced by $14. Operational nonwage and benefit costs savings were derived in commercial legal fees by $39, dues and subscriptions by $17, and depreciation and recruiting software, each by $13. Overall, staff health benefits were up $11 due to an increase in premium costs and accrued leave up $33. The only other notable cost increases in 2023 over 2022 were staff meetings by $31, necessitated by our virtual model; marketing and promotion by $26, as investments were made in digital marketing; and contract services by $15. Interest Income : Interest income from related parties increased by $37 from $232 to $269. Maslow earned an additional $25 interest income; $8 of which was federal interest received for the delay in receipt of the 2021 second quarter ERC which was not deposited until April 28, 2023; and $17 from the money market interest on mostly those very same funds. Other Income (Expense): In 2022, $223 was netted mainly from $211 in additional ERC funds from the IRS for our 941X submission for the first quarter 2021, which we thought a portion to be ineligible when it was filed. These earnings were eroded slightly by legal fees associated with the SWC matter. In 2023, the results are flipped by $402 as we accumulated only nonoperational costs, which were legal fees for the SWC matter ($65), and for restructuring severance and related legal fees ($114). Interest Expense: Interest expense was the lowest it has been since 2016 at $92 in 2023 versus $171 in the year ending December 31, 2022. This represents a $79 positive variance which was enabled by the ERC cash which in turn eliminated our need to factor (borrow) from May until the end of December 2023. Income Taxes: Income tax expense in 2023 was $14 compared to $170 for the year ending December 31, 2022. 2023 taxes booked covered several state income taxes which had minimum tax requirements. 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, legal costs associated with the Vivos Matter, and client accounts receivable receipts. Since receipts from client payments are on average 69 days behind payments to field talent, working capital requirements can be periodically challenged. We have a factoring facility with Gulf Coast Bank, which advances 93% of our eligible receivables at an advance rate of 15 basis points, an interest rate of prime plus 2%, with our prime floor rate at 4%. Additionally, in April 2023, we entered into a Buyer Initiated Payment (“BIP”) agreement with American Express (“Amex”) which enables MMG to be advanced 100% of purchase order approved invoices minus a flat interest rate percentage that is based on that day’s submitted invoice volume. The greater the volume the lower the interest rate charged. This has had a profoundly positive impact on our ability to accelerate cash conversion and lower DSO as well as our borrowing costs. As of December 31, 2023, 87.4% of our $2,993 in accounts receivable was current compared to 66.3% out of $5,750 which was current on December 31, 2022. As of December 31, 2023, 98.0% is current to 30 days past due compared to 87.5% a year ago, 0.9% between 31 and 60 days past due versus 11.6% in 2022, and 0.6% between 60 and 90 days versus 0.4% at the end of 2022, and 2023’s 0.5% for 90 days and greater past due which was on par for the portion greater than 90 days in 2022. Our primary sources of liquidity are cash generated from operations via accounts receivable and borrowings under our Factoring Facility with Gulf Bank (“Gulf”), and Amex’s BIP, with the former enabling access to the 7% unfactored portion. Because certain large clients a few years ago 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 Gulf no longer provides credit if an account obligor pays more than 120 days after the invoice date. However, since Gulf covers two of the companies that have moved to 90-day terms, it reduces that burden on us. 34 Our primary uses of cash are for payroll to field talent, corporate and staff employees, related payroll liabilities, operating expenses, legal fees relating to the Vivos matter and the SWC lawsuit, 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 BIP borrowing interest; and cash taxes. As of March 17, 2024, we have no long-term 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 employed factoring. Because we do also employ 1099 contracted firms and individuals with payments terms which vary from immediate to 30 days, our cash requirements can be quite variable. Vivos Debtors as of December 31, 2023 had notes receivable totaling $5,501, including default on a $3,000 promissory note and on a $750 tax obligation in December 2019. 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. In April 2023, we received our final ERC payment of $1,209 as the ERC did help bolster our cash reserves over the past three years. As of December 31, 2023, our working capital was $7,913 compared to $8,645 on December 31, 2022 and $9,361 at the end of 2021. We are due an additional approximate $138 for tax abatements that we negotiated with the IRS for the tax period 2016-2019. In 2023, our 2022 10K stated we would be adding $350 to our SG&A for growth, and although we did begin the investments on personnel, we did not begin implementing our new ADP Workforce Manager and Workforce Now Payroll and HRIS system as soon as originally planned as it went live late December 2023. Additionally, due to lower revenue than anticipated and the Vivos Matter not settling as anticipated, certain initiatives were not pursued. In 2024, we do anticipate approximately $350 in incremental SG&A, as we continue to invest for growth as heads will be added for sales, recruiting, and human resources, as well as an expected increase in legal fees associated with the receiving process, liability insurance based on improved D&O coverage, and payroll fees associated, and with ADP’s Workforce Now . We also factored in price increases due to inflation but at a lower rate than a year ago. For 2023, a summary of our operating, investing, and financing activities is shown in the following table: December 31, 2023 2022 Net cash provided by (used in) operating activities $ 3,016 $ (1,427 ) Net cash used in investing activities (9 ) (9 ) Net cash provided by financing activities (2,412 ) 1,639 Net change in cash and cash equivalents $ 595 $ 203 35 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 2023, net cash provided by operating activities was $3,016, an increase of $4,443 compared to ($1,427) in 2022. This increase is primarily attributable to trade receivables providing $3,344 more in converted cash than 2022, while accrued payroll shrank comparatively by $304, coupled with $505 less in cash accumulated for taxes in 2022 based on 2021’s net profit. Investing Activities Cash used in investing activities consists primarily of cash paid for capital expenditures. Only laptops were purchased in 2022 and 2023. Financing Activities Cash used in financing activities in 2023 was ($2,412) as compared to cash employed for the same purpose totaling $1,639 in 2022. Our borrowing was $10,204 and repayment of $6,085 less in 2023 than in 2022 as we repatriated all factoring cash by July 2023. We only began borrowing again in late December 2023 and landed on $174 due to Gulf compared to $2,619 at the end of 2022. 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, contingencies, litigation, income taxes, 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. REVENUE RECOGNITION 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 four segments: EOR, Recruiting and Staffing (temporary), Direct Hire and Video and Multimedia Production. Revenues are recognized when promised services are delivered to a 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 often related to out-of-pocket expenses, and equipment leasing are also included in revenues, and equivalent amounts of reimbursable expenses and leased costs 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. 36 Temporary staffing revenues are 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. Direct Hire 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 30 days. The contract with the customer stipulates a guarantee period whereby the Company will replace the candidate free of charge if the employee is terminated within the first 90-day period. As such, the Company’s performance obligations are satisfied upon commencement of employment, at which point control has transferred to the customer. Allowances, recorded as a liability, are established to estimate these losses. Fees to clients are generally calculated as a percentage of the new worker’s annual compensation. No fees for Direct Hire services are charged to employment candidates. Video and Multimedia Production revenues from contracts with clients are recognized in the amount to which we have a right to invoice when the services are rendered by our field talent. 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.