DEBT

9 Months Ended

Sep. 30, 2022

Debt Disclosure [Abstract]

DEBT

NOTE 5. DEBT

Tax Liabilities

When MMG was initially acquired by Vivos Holdings, LLC in 2016, the Company’s corporate status was changed from an S Corp to a C Corp due to its new ownership structure. This triggered an accelerated tax event, a $215 estimated annual impact per year for 4 years which was accounted for in subsequent tax returns through 2019. In 2021, MMG completed settlement of the estimated $860 tax liability caused by the Vivos Group in 2017, paying the final estimated portion of $300 in 2021.

As of September 30, 2022, the Company no longer has a federal tax liability related to tax periods prior to 2020.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(amounts in thousands, except per share data)

Factoring Facility

Gulf Coast Bank and Trust

On August 24, 2022, we were notified by our factoring company Triumph Business Capital (“TBC”) that our factoring arrangement had been sold to Gulf Coast Bank and Trust (“Gulf”), as TBC had decided to sell its non-transportation portfolio. The transition took place between August 26^th and 28^th with new financing coming from Gulf. However, until all open accounts receivable (“A/R”) managed by TBC is collected, a portion of those funds plus non factored receivables continue to come to MMG from TBC. 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 September 30, 2022, the required amount was 7%. Any excess of the reserve amount is paid to the Company on a weekly basis, as requested. If a reserve shortfall exists for a period of ten days, the Company is required to make payment to the financial institution for the shortage.

Accounts receivables were sold with full recourse. Proceeds from the sale of receivables were $3,429 for the three-month period ending September 30, 2022, compared to $1,756 for the same period ending on September 30, 2021, and $10,388 compared to $2,453 for the nine months ended September 30, 2022 and 2021, respectively. The total outstanding balance under the recourse contract was $2,014 on September 30, 2022, compared to $946 as of December 31, 2021.

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, 2022, and 2021 totaled $46 and $15, respectively, and $111 and $78 for the nine months ended September 30, 2022, and 2021, respectively.