DEBT

6 Months Ended

Jun. 30, 2023

Debt Disclosure [Abstract]

DEBT

NOTE 5. DEBT

Tax Liabilities

As of June 30, 2023, the Company’s overall tax liability was $5 compared to $6 on December 31, 2022.

Factoring Facility

The Company is in 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.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(amounts in thousands, except per share data)

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 $681 for the three-month period ending June 30, 2023, compared to $4,149 for the same period ending on June 30, 2022, and $3,297 compared to $6,960 for the six months ended June 30, 2023 and 2022. The total outstanding balance under the recourse contract was $82 on June 30, 2023, compared to $2,619 as of December 31, 2022 and $2,725 on June 30, 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 six months ended June 30, 2023 and 2022 totaled $44 and $29, respectively.