UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2024
	Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________to ____________.

Commission File Number 0-7092

RELIABILITY INCORPORATED

(Exact name of registrant as specified in its charter)

texas	75-0868913
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

22505 Gateway Center Drive, P.O. Box 71, Clarksburg, Maryland	20871
(Address of principal executive offices)	(Zip Code)

(202) 965-1100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name each exchange on which registered
Common Stock, no par value	RLBY	OTC Pink Sheets

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ YES ☐ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒ NO

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 300,000,000 shares of Common Stock, no par value, as of June 30, 2024.

RELIABILITY INCORPORATED

Quarterly Report on Form 10-Q

As of and For the Three Months Ended June 30, 2024

INDEX

PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Unaudited Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	3
	Unaudited Consolidated Statements of Operations for the Three Months Ended June 30, 2024 and 2023	4
	Unaudited Consolidated Statements of Operations for the Six Months Ended June 30, 2024 and 2023	5
	Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2024 and 2023	6
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	7-8
	Notes to Unaudited Consolidated Financial Statements	9-15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Risk Controls and Procedures	20
PART II. OTHER INFORMATION		21
Item 1.	Legal Proceedings	21
Item 1a.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
Signatures		23
Exhibits		24

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RELIABILITY INCORPORATED AND SUBSIDIARY

UNAUDITED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share data)

	June 30,		December 31,
	2024		2023
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	271	$	822
Trade receivables, net of credit losses		3,742		2,993
Other receivables		14		10
Notes receivable from related parties		5,766		5,501
Prepaid expenses and other current assets		182		442
Total current assets		9,975		9,768
Other intangible assets, net		3		3
Property, plant and equipment, net		69		15
Total assets	$	10,047	$	9,786
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Factoring liability	$	217	$	174
Accounts payable		747		548
Accrued expenses		234		290
Accrued payroll		985		637
Deferred revenue		200		206
Total current liabilities		2,383		1,855
Total liabilities		2,383		1,855
Commitment and contingencies (Note 6)
Subsequent events (Note 10)
SHAREHOLDERS’ EQUITY
Common stock, without par value, 300,000,000 shares authorized, 300,000,000 issued and outstanding as of June 30, 2024 and as of December 31, 2023		-		-
Additional paid-in capital		750		750
Retained earnings		6,914		7,181
Total shareholders’ equity		7,664		7,931
Total liabilities and shareholders’ equity	$	10,047	$	9,786

The accompanying notes are an integral part of these statements.

3

RELIABILITY INCORPORATED AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

	For the Three Months Ended June 30,
	2024			2023
Revenue earned
Service revenue	$	6,041		$	5,452
Cost of revenue
Cost of revenue		5,237			4,712
Gross profit		804			740
Selling, general, and administrative expenses		986			911
Operating loss		(182	)		(171	)
Other income (expense)
Interest income from related parties		210			66
Interest income		1			6
Interest expense		(20	)		(22	)
Other expense		(136	)		(119	)
Income (loss) before income tax expense		(127	)		(240	)
Income tax expense		(7	)		-
Consolidated net loss	$	(134	)	$	(240	)
Net income per share:
Basic	$	0.00		$	0.00
Diluted	$	0.00		$	0.00
Share used in per share computation:
Basic		300,000,000			300,000,000
Diluted		300,000,000			300,000,000

The accompanying notes are an integral part of these statements.

4

RELIABILITY INC. AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

	For the Six Months Ended June 30,
	2024			2023
Revenue earned
Service revenue	$	11,336		$	10,651
Cost of revenue
Cost of revenue		9,824			9,200
Gross profit		1,512			1,451
Selling, general, and administrative expenses		1,933			1,844
Operating loss		(421	)		(393	)
Other income (expense)
Interest income from related parties		280			131
Interest income		16			14
Interest expense		(35	)		(65	)
Other income (expense)		(229	)		(119	)
Loss before income tax (expense) benefit		(389	)		(432	)
Income tax (expense) benefit		122			(3	)
Consolidated net loss	$	(267	)		(435	)
Net loss per share:
Basic	$	0.00		$	0.00
Diluted	$	0.00		$	0.00
Shares used in per share computation:
Basic		300,000,000			300,000,000
Diluted		300,000,000			300,000,000

The accompanying notes are an integral part of these statements.

5

RELIABILITY INCORPORATED AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2024 and 2023

(amounts in thousands, except per share data)

					Additional
	Common Stock				Paid-in		Retained			Total
	Shares		Amount		Capital		Earnings			Equity
Balance, December 31, 2022		300,000,000	$	-	$	750	$	7,921		$	8,671
Net loss		-		-				(435	)		(435	)
Balance, June 30, 2023		300,000,000	$	-	$	750	$	7,846		$	8,236
Balance, December 31, 2023		300,000,000	$	-	$	750	$	7,181		$	7,931
Net loss		-		-				(267	)		(267	)
Balance, June 30, 2024		300,000,000	$	-	$	750	$	6,914		$	7,664

The accompanying notes are an integral part of these statements.

6

RELIABILITY INCORPORATED AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

	For the Six Months Ended June 30,
	2024			2023
Cash flows from operating activities:
Net loss	$	(267	)	$	(435	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		4			10
Accrued interest		(265	)		(131	)
Changes in operating assets and liabilities:
Trade receivables		(749	)		3,856
Retention credit receivable		-			1,209
Other receivables		(5	)		(14	)
Prepaid expenses and other current assets		260			119
Accounts payable		199			(403	)
Accrued payroll		349			(50	)
Accrued expenses		(56	)		(19	)
Deferred revenue		(6	)		-
Income taxes payable		-			(1	)
Net cash provided by (used in) operating activities		(536	)		4,141
Cash flows from Investing activities:
Purchase of fixed assets		(58	)		-
Net Cash used in investing activities		(58	)		-
Cash flows from financing activities:
Net borrowing/(repayment) of line-of-credit		43			(2,542	)
Advances to related parties		-			34
Net cash used in financing activities		43			(2,508	)
Net increase (decrease) in cash and cash equivalents		(551	)		1,633
Cash and cash equivalents, beginning of period		822			227
Cash and cash equivalents, end of period	$	271		$	1,860

The accompanying notes are an integral part of these statements.

7

RELIABILITY INCORPORATED AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(amounts in thousands)

	For the Six Months Ended June 30,
Supplemental disclosures of cash flow information:	2024		2023
Cash paid (received) during the year for:
Interest	$	20	$	65
Income taxes	$	7	$	4

8

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(amounts in thousands, except per share data)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

Reliability, Inc. is a leading provider of Employer of Record and temporary Media and Information Technology (“IT”) staffing services that operates, along with its wholly owned subsidiary, The Maslow Media Group, Inc (“MMG”), (collectively, “Reliability” or the “Company”), primarily within the United States of America in four industry segments: Employer of Record (“EOR”), Recruiting and Staffing, Direct Hire, and Video and Multimedia Production, which provides script-to-screen services. Our Staffing segment provides skilled field talent on a nationwide basis for Media, IT, and finance and accounting client partner projects. Video Production involves assembling and providing crews for special projects, webcasting, live events, post-production services, and production management.

Reliability was incorporated under the laws of the State of Texas in 1953, but the then principal business of the Company started in 1971 was closed down in 2007. The Company completed a reverse merger with MMG (the “Merger”) on October 29, 2019.

Company Background

Linda Maslow founded MMG initially in 1988 and incorporated the firm under the name the Maslow Media Group Inc. in March 1992.

On November 9, 2016, Linda Maslow sold the business to Vivos Holdings, LLC (“Vivos Holdings”) owned by Dr. Naveen Doki (“Dr. Doki”) and Silvija Valleru (“Ms. Valleru”).

In 2019, Vivos Holdings collaborated on a share swap of MMG 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”).

As a result of the Merger, on October 29, 2019, MMG became a wholly owned subsidiary of Reliability, and 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.

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. Doki. Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC, and Dr. 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, culminating in an agreement to settle through arbitration. 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.

9

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(amounts in thousands, except per share data)

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 the shares of common stock of the Company were declared not be entitled to vote any of those shares at any annual or special meetings of the shareholders of the Company during the period of the receivership.

On October 10, 2023, the Arbitrator issued a Supplemental Award appointing the Receiver to assist the Company in collecting the awarded amounts. In the award, the Arbitrator established the powers of the Receiver.

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.

Per Maryland law, the enrolling of judgements enables MMG to apply 10% interest to the Vivos Debtor balance beginning December 29, 2023. MMG began applying the additional interest in the second quarter 2024.

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 June 30, 2024, the Vivos Debtor balance was $5,766. The Award value in totality currently aggregates $7,975, independent of legal fees after the award and interest.

Basis of presentation

The unaudited condensed consolidated interim financial statements include the accounts of the Company and all wholly owned divisions, including its 100% owned subsidiary, MMG. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the SEC and should be read in conjunction with the audited financial statements and notes thereto contained in our Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented, have been reflected herein. The results of operations for the periods presented herein are not necessarily indicative of the results to be expected for the full year.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2023.

Concentration of Credit Risk

For the six months ended June 30, 2024, 27.2% of revenue came from one customer, 21.7% from a second customer and 13.5% from a third. Combined, this totals 62.4% of revenue. In 2023, the top two companies were the only ones above the 10% mark and accounted for 24.5% and 13.6%, respectively, which is 38.1% combined. The aforementioned top three 2024 clients improved upon their combined concentration in 2023 when this group garnered 45.7% share of the revenue. No other client has exceeded 10% of revenues for the three months ended June 30, 2024 or 2023.

10

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(amounts in thousands, except per share data)

NOTE 2. MANAGEMENT’S PLAN

Although the Company experienced net losses after taxes for the six months ended June 30, 2024 and, in the years, ended December 31, 2023 and 2022 of $267, $740, and $739, respectively, management believes it has the ability to continue as a going concern and meet its financial obligation as they become due in 2024 and beyond. The factors impacting this view include, but are not limited to, the following:

● Cash flow forecast showing sufficient cash and working capital 52 weeks from August 3, 2024;

● The expected reductions in continuing legal fees in 2024 given the Company has collectible judgments that the Receiver is now eligible to pursue;

● An expectation that the notes receivable from related parties will be renumerated in cash and/or stock and that stock will provide capital market access over the long term;

● Expected progress in sales, newer agreements that will begin fulfillment, our current pipeline, and current larger clients who have indicated increases in media activity for 2024 which in the first six months of 2024, have been realized; and

● The Company has additional availability to use its factoring line to extend borrowing of up to 93% of unfactored invoices which, as of August 3, 2024, was $3,278.

As a result of the foregoing, the Company believes that it has sufficient cash to meet its financial obligations for the next 12 months and beyond as they become due.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU enhances the disclosures related to segment reporting for public entities. It requires entities to disclose significant segment expenses for each reportable segment, providing greater transparency in segment performance. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating how this ASU will impact its consolidated financial statements and disclosures.

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. ASU 2023-09 largely follows the proposed ASU issued earlier in 2023 with several important modifications and clarifications discussed below. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 (generally, calendar year 2025) and effective for all other business entities one year later. Entities should adopt this guidance on a prospective basis, though retrospective application is permitted. The Company is currently evaluating how this ASU will impact its consolidated financial statements and disclosures.

Adopted Accounting Pronouncements

The Company does not believe any other recently issued but not yet effective accounting pronouncement, if adopted, would have a material effect on its present or future consolidated financial statements.

11

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(amounts in thousands, except per share data)

NOTE 4. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	June 30, 2024		December 31, 2023
Accounts receivable, unfactored	$	3,113	$	2,819
Accounts receivable, factored		629		174
Total Accounts Receivable	$	3,742	$	2,993

NOTE 5. DEBT

Factoring Facility & Insurance Financing

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.

Accounts receivables were sold with full recourse. Proceeds from the sale of receivables were $1,405 for the six-month period ended June 30, 2024, compared to $2,627 for the same period ended on June 30, 2023. The total outstanding balance under the recourse contract was $217 on June 30, 2024, compared to $174 as of December 31, 2023.

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.

MMG also enters into short term 10-month loan agreements annually to finance advance payments on crime, E&O, and D&O insurances. In 2023, MMG entered into two loans totaling $143 with finance charges over 10 months totaling approximately $7.

Total finance fees for all loans for the three months ended June 30, 2024 and 2023 totaled $16 and $44, respectively. The insurance portion of both periods was approximately $2.

NOTE 6. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. Except as set forth below, we are not aware of any such legal proceedings or claims against the Company.

A series of legal actions and hearings took place starting in March of 2020 with the Vivos Group over Merger agreement violations and Vivos Group debt obligations. Arbitration was agreed to in the fall of 2021 by both the Vivos Group and MMG with the proceedings commencing in February 2022.

12

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(amounts in thousands, except per share data)

On August 31, 2022, the arbitrator issued the Award with the Company and MMG prevailing on their claims. The awards included citing of 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 aggregate amount of the Awards, which are now court judgements, totals $7,795 as interest continues to accrue on these awarded balances.

The May 17, 2023 award also appointed a Receiver whose primary function is to collect the contract and fraud damages, including costs, expenses, and fees provided in the awards.

On October 10, 2023, the Arbitrator issued a Supplemental Award appointing the Receiver to assist the Company in collecting the awarded amounts. In the award, the Arbitrator established the powers of the Receiver.

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.

In September 2022, MMG learned that a Vivos IT, LLC lawsuit against Second Wind Consulting (“SWC”), in May 2019 included MMG as a plaintiff. SWC effectually countersued plaintiffs Suresh Doki, Naveen Doki, and Silvija Valleru on September 30, 2019 seeking to collect the balance of $403 not paid by the Vivos Group. This was not disclosed to MMG management or to Reliability before the Merger which closed on October 29, 2019.

MMG counsel filed a motion to add 4 parties to a counterclaim (HCRN, M&M, 360 IT and US IT). The court approved our motion, and all 4 parties were added. MMG has since released HCRN from the counterclaim. On July 24, 2024 the court denied SWC’s motion for summary judgement related to their counterclaim. To date MMG has $110 in legal fees associated with this matter that have been booked to Other Expense.

At the present time, the Company is uncertain as to whether the above item will have a material impact on their consolidated financial statements.

NOTE 7. EQUITY

The Company’s authorized capital stock consists of 300,000,000 shares of common stock, with no par value. All authorized shares of Company Common Stock are issued and outstanding.

NOTE 8. RELATED PARTY TRANSACTIONS

Stock Purchase Agreement

On November 9, 2016, Vivos Holdings, LLC, the former owner of MMG, acquired 100% of MMG through a stock acquisition exchange for a purchase price of $1,750, of which $1,400 was paid at settlement with proceeds from MMG. The Vivos Debtors subsequently entered into a promissory note receivable with MMG for the full stock purchase price. Between 2018 to present there was $2,217 in additional borrowings.

Related Party Notes Receivable

The Company has several notes receivable from related parties. Prior to the Merger, Vivos Holdings collaborated on a share swap of MMG 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], which are collectively referred to as the “Vivos Group.”

13

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(amounts in thousands, except per share data)

The table below is a summary of Vivos Group related party notes receivable which, as of June 30, 2024, totals $5,766.

Note Description	Acquisition Loan to Vivos, LLC			Interco Loan to Vivos Real Estate, LLC		Tax Note		Total Notes Receivable
Origination date	November 9, 2016			November 15, 2017		September 15, 2019
Original borrowed amount	$	1,400		$	772	$	750	$	-
Balance on December 31, 2021	$	3,383		$	812	$	790	$	4,985
Additional borrowings		34			-		-		34
Accrued interest		167			45		20		232
Balance on December 31, 2022	$	3,584		$	857	$	810	$	5,251
Repayments		(19	)		-		-		(19	)
Accrued interest		200			49		20		269
Balance on December 31, 2023	$	3,765		$	906	$	830	$	5,501
Accrued interest		191			46		43		280
Repayments		(15	)						(15	)
Balance on June 30, 2024	$	3,941		$	952	$	873	$	5,766

Debt Settlement Agreements

On July 21, 2021, MMG settled the obligation which Vivos Holdings, LLC had obligated MMG to in July 2018, with Libertas Funding, LLC and Kinetic for $475. The $475 is included in the additional borrowings represented above.

In June 2023, VREH was able to sell the property at 22 Baltimore Road, in Rockville, Maryland, leaving the Company with no liability with respect to the building that MMG was signed as a guarantor without management’s knowledge in 2017. The Company may be entitled to cash in the amount of up to $90 as a result of the bankruptcy proceedings and sale of the building. Such an amount would reduce Vivos debt to MMG by that amount. As of June 30, 2024, MMG has not learned of any proceeds granted by the court.

Related Party Relationships

On October 29, 2019, prior to the Merger, Naveen Doki and Silvija Valleru became beneficial owners of Company Common Stock, equal to approximately 69% and 17% of the total number of shares of the Company’s Common Stock outstanding after giving effect to the Merger, respectively.

At the present time, the Vivos Group shall not be entitled to vote any of their shares in Reliability at any annual or special meetings of the shareholders. A Receiver is empowered to recover the awards by seizing shares of the Company held by Dr. Naveen Doki and his affiliates, the Vivos Group. Once the judgments in favor of Reliability are satisfied, the restrictions on the rights of the Vivos Group shareholders imposed by the Award shall be lifted.

In the summer of 2019, prior to the Merger, MMG entered into a Securities Purchase Agreement with several parties including CEO Nick Tsahalis (“Mr. Tsahalis”), CFO Mark Speck (“Mr. Speck”), both officers and then directors of the Company, and Hawkeye Enterprises (“Hawkeye”), a company owned and controlled by Mr. Speck. The convertible promissory notes signed by Mr. Tsahalis and Mr. Speck afforded them both common shares of Reliability based on the initial principal amounts of $100 each. Mr. Tsahalis, Mr. Speck, and Hawkeye also received Warrants to purchase 16,323, 81,616, and 81,616 shares, respectively, (on a post-Merger basis) of the Company Common Stock.

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RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(amounts in thousands, except per share data)

On July 31, 2024 approximately 77% of the warrant value associated with 2019 convertible promissory notes expired. (See Subsequent Events).

The term “warrant” herein refers to warrants issued by MMG and assumed by the Company as a result of the Merger. The terms of all Warrants are the same other than as to the number of shares covered thereby. The Warrant may be exercised at any time or from time to time during the period commencing on first business day following the completion of the Qualified Financing (as defined below) and expiring on the fifth annual anniversary thereof (the “Exercise Period”). For purposes herein, a “Qualified Financing” means the issuance by the Company, other than certain excluded issuances of shares of Common Stock, in one transaction or series of related transactions, which transaction(s) result in aggregate gross proceeds actually received by the Company of at least $5,000. The exercise price per full share of the Company Common Stock shall be 120% of the average sale price of the Company Common Stock across all transactions constituting a part of the Qualified Financing. Convertible note warrants were not valued and included as liability on balance sheet because of uncertainty around their pricing, value, and low probability in receiving the $5,000 trigger. The five-year eligibility for all holders of these Warrants will expire in October 2024.

NOTE 9. BUSINESS SEGMENTS

The Company operates within four industry segments: EOR, Recruiting and Staffing (“Staffing”), Direct Hire, and Video Production. The EOR segment provides media field talent to a host of large corporate customers in all 50 states. The Recruiting and Staffing segment provides skilled Media and IT field talent on a nationwide basis for customers in a myriad of industries. Direct Hire fulfils direct placement requests by MMG clients for a wide variety of posts, including administrative, media, and IT professionals. The Video and Multimedia Production segment provides script-to-screen services for corporate, government, and non-profit clients, globally.

The following tables provides a reconciliation of revenue by reportable segment to consolidated results for the three and six months ended June 30, 2024 and 2023, respectively:

For the Three Months Ended June 30:

	2024		2023
Revenue:
EOR	$	5,243	$	4,499
Recruiting and Staffing		713		863
Direct Hire		27		22
Video and Multimedia Production		58		68
Total	$	6,041	$	5,452

For the Six Months Ended June 30:

	2024		2023
Revenue:
EOR	$	9,815	$	8,773
Recruiting and Staffing		1,380		1,628
Direct Hire		51		51
Video and Multimedia Production		90		199
Total	$	11,336	$	10,651

NOTE 10. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through August 13, 2024, the date on which the unaudited condensed consolidated financial statements were available to be issued. Based upon this evaluation, management has determined that no material subsequent events have occurred that would require recognition in or disclosures in the accompanying unaudited condensed consolidated financial statements, except as follows:

On July 24, 2024, the court denied SWC’s motion for summary judgement related to their counterclaim.

On July 31, 2024, approximately 77% of the warrant value associated with 2019 convertible promissory notes that were held by 7 entities including CEO Nick Tsahalis and CFO Mark Speck, expired. The remaining warrants will expire on October 4^th if the Company fails to enter a transaction or series of related transactions, resulting in aggregate gross proceeds to the Company of at least $5,000.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. 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; 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 Quarterly Report, the “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, 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 Current 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, with the SEC. Our actual results may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our financial statements and related notes thereto and other financial information included in this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND COMMENTS RELATED TO OPERATIONS

This discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

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There have been no material changes or developments in the Company’s evaluation of the accounting estimates and the underlying assumptions or methodologies that it believes to be Critical Accounting Policies and Estimates as disclosed in its Form 10-K for the year ended December 31, 2023.

Management’s Discussion included in the Form 10-K for the year ended December 31, 2023, includes discussion of various factors and items related to the Company’s results of operations and liquidity. There have been no other significant changes in most of the factors discussed in the Form 10-K and many of the items discussed in the Form 10-K are relevant to 2024 operations; thus, the reader of this report should read Management’s Discussion included in Form 10-K for the year ended December 31, 2023.

RESULTS OF OPERATIONS

Revenues

Revenues for the three months ended June 30, 2024 were $6,041, which represented an increase of $589 over the $5,452 tallied in the second quarter of 2023. This was the first time we have had consecutive revenue beats on comparative periods a year ago since 2019. Our top four clients all had increases in revenue when compared to the second quarter a year ago by $1,445.

Our EOR segment drove this year-over-year growth with $5,243 revenue in all, which was $744 or 16.5% over 2023’s second quarter EOR revenue of $4,499. The top three revenue producing clients overall contributed $3,809 or 68% of EOR quarterly revenue compared to $2,401 a year ago in the period ending June 30, 2023. The EOR segment revenue increase from these three clients was $1,388.

Staffing, however, saw a dip in revenue by $150 or 17.4% from $863 to $713 in the period ending June 30, 2023 to 2024. Three clients caused the dip: one being a lost client (to the bidding process conducted at the end of their contract) for $108 of the $150 negative variance; an account that had curtailed their media spending steeply post COVID and who converted 10 of our employees to their own a year ago, accounted for $73; and one client contracted their list of IT resource vendors, having a $57 negative impact. Otherwise, 10 of 13 active staffing clients had increased staffing revenues totaling $105.

Our Direct Hire business garnered $27 in revenue which was $5 greater than the same period ending June 30, 2023. Video Production saw a $10, or 14.7% decline in the second quarter comparative revenue going from $68 a year ago to $58.

Revenues grew $685 for the six-month period ending June 30, 2024 with a total of $11,336 versus $10,651 in the same period 2023. The increase was driven by our top 3 revenue producers who amassed $6,741 in the six months ending June 30, 2024 which is 59.5% of our total revenue and a $1,906 increase over their revenue contributions in the same 6-month period ending June 30, 2023.

EOR drove the six-month growth with $9,815 in revenue which was $1,042, or 11.9% more than this business garnered in the same period 2023, when it produced $8,773 in revenue. Otherwise, in the six-month period ending June 30, 2024, Direct Hire revenue was identical to the same period 2023 at $51, Staffing at $1,380 was off 2023’s second quarter pace by $248, or 15.2%, and Video Production at $90 was $109 or 54.8% away from 2023’s six-month revenue of $199.

Cost of Revenue / Gross Profit

For the three-month period ended June 30, 2024, gross profit at $804 saw a $64 or 8.6% improvement comparatively to the three-month period ended June 30, 2023, when gross profit landed on $740. Gross margins, however, slipped from a year ago to 13.3% from 13.6% as our EOR revenue mix increased to 86.9% of all quarterly revenue from 82.5% in the same period 2023. EOR revenue increasing by $744 coupled with almost twice the weighting toward lower margin 1099 COR at 28% versus 12.5% in the second quarter 2023, had the greatest impact on the gross margin slipping by thirty basis points.

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Meanwhile, Staffing gross profit declined by $12 from $155 to $143 in the second quarter 2024 compared to 2023. Whereas revenue for staffing was down 17.4%, gross margin was up 4.8% to 44.7%, thus softening the 7.7% gross profit decline.

Direct Hire gross profit improved by $10 even though revenue increased by $5 as margins were 92.4% in the second quarter 2024 versus 69.3% in the same period ending June 30, 2023. Our searches required less recruiting software time allocation, hence the higher margin. Video Production had $8 in gross profit in the second quarter ending June 30, 2024, compared to $20 in the same period in 2023.

Gross Profit grew $61 or 4.2% to $1,512 in the six months ending June 30, 2024 versus $1,451 in the same period a year ago but not quite at the same 6.4% rate that revenue increased. This is because the $1,512 represented 13.3% in gross margin versus the 13.6% in the second quarter 2023.

The six-month revenue mix weighted heavier to EOR by $1,041 in the six months ending June 30, 2024 when compared to a year ago, accounted for 30 basis points despite EOR gross margins dropping only .1% from 12.2% to 12.1% year over year.

EOR margins would have ordinarily increased but a heavier use of 1099 labor at a 2.6% lower margin offset a W2 margin increase. When extending EOR contracts we continue to incorporate reasonable pricing markup increases which slowly improve margins. Additionally, our customer mix continues to be more weighted to clients that have more favorable pricing terms than those that previously dominated sales. This is why our EOR business is now seeing 12.2% margins as opposed to the 9.8% it did, four years ago.

As for our non-EOR business in the first six months of 2024, compared to 2023: Direct Hire margins improved 21.8% from 73.7% in the first six months of 2023 to 95.4% in 2024, due to lower use of fixed recruiting resources. Media Staffing margins also improved to 18.9% from 18.4% year-over-year. Video Production captured an 11.8% gross margin as opposed to a more traditional margin of 18.7% in the six months ending June 2023 due to our affording a large discount to one of our premier clients.

General and Administrative (“G&A”)

General and administrative expenses for the three months ended June 30, 2024 were $986 compared to $911 in the same period in 2023, representing an $75 or 8.2% increase. The increase in spending when compared to 2023’s second quarter was rooted in higher base salaries, payroll tax and benefits by $88. Sales headcount was increased from an average of 3 Full Time Equivalents (FTE) to 4.2 FTE leading to $39 higher in loaded salaries in the period ending June 30, 2024 compared to 2023. Operational non loaded salaries were higher by $6, in the second quarter 2024 compared to the same period 2023. A $36 reduction in contract services coupled with a favorable legal cost differential of $10 were overshadowed by higher software costs by $32 and payroll costs of $13.

On December 29, 2023 we learned the Maryland Circuit court certified the arbitration award as a judgement. The costs related to the award are now centered on collection and recovery. Since we began separating non-core operational expenses in 2023 and recording them to Other Expense, MMG decided to begin recording all related Receiver expenses from SG&A (operational) legal to Other Expense. Thus $64 in legal costs for the first six months of 2024 were reclassed to Other Expense, creating a favorable legal cost comparison to the same period in 2023.

Interest Expense

The Company incurred $20 in interest charges for financing, factoring, and paying an advance rate (BIP) against its invoices in the second quarter 2024 compared with $22 in the same period a year ago.

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Other Income (Expense)

These mostly non-operational one time or short-term costs, in the second quarter totaled $136 including $64 in Receiver and arbitration award related costs being reclassed from SG&A legal. We closed out employee matters with $51 in costs for the second quarter but incurred $13 more costs related to the SWC matter (see Note 6). We began booking these non-operational fees to Other Income (Expense) last year in the second quarter, which consisted of all SWC and employment matters totaling $119. Thus, the increase in expenses in 2024 was $17.

For the six months ended June 30, 2024, Other Expense was $229 which consisted of the following costs: $64 in aforementioned award recovery related costs, $68 in SWC, and $97 in employee severance and related legal fees. A year ago, we recorded $119 comparatively in the same period consisting of $66 in employment matters and $53 related to SWC. We have now incurred $110 in legal fees for the SWC matter since September 2022.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital requirements are driven predominantly by EOR field talent payments, G&A salaries, public company costs, interest associated with financing, legal fees associated with the Vivos and related SWC matter and client accounts receivable receipts. Since receipts from client payments are on average 60 days behind payments to field talent, working capital requirements can be periodically challenged. To accelerate cash and ensure sufficient liquidity, we have both a Buyer Initiated Payment (“BIP”) agreement with American Express (“Amex”) and a Factoring Facility with Gulf Coast Bank (“Gulf”).

Our BIP agreement with Amex 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. The implementation of this program in the second quarter of 2023 profoundly impacted our ability to accelerate cash conversion and lower DSO as well as our borrowing costs. Given our use of BIP is with 90-day terms clients, our approximate APR is 6.1% compared to Factoring average approximate APR rate of 11.1% based on the current prime rate of 8.5%.

Gulf, on the other hand, advances 93% of our eligible receivables at an advance rate of 15 basis points, an interest rate of prime plus 2%., and our prime floor rate at 4%. Our Days Outstanding (DSO) remained steady for the trailing twelve months ending June 30, 2024, is at 49 compared to a 58 DSO for the trailing twelve months ended June 30, 2023.

These programs plus the portion of our business in which the client has elected or is required to pay in advance of approximately $168 every two weeks, counteract the approximate 32% of our revenue from clients that are on 90-day terms, some of which were demanded by larger clients, and have delays in providing receipt of purchase orders.

When looking at A/R aging in relation to payments to due date, as of June 30, 2024, 91.8% of our $3,742 in total trade A/R was current and 97.6% was < 31 days aged, compared to 89.2% and 99.0% a year ago, respectively. Our > 60 days aged invoices totaling $57, represent 1% of our total A/R. We had only one hundred and eighty dollars in bad debt over the past five years.

Our primary sources of liquidity are cash generated from operations via accounts receivable and borrowings under our Factoring Facility with Gulf enabling access to the 7% unfactored portion. Because certain large clients have changed their payment practices announcing 60- and 90-day terms amounting to a unilateral extension to contractual terms by 30-60 days, we would otherwise be adversely impacted but not since we adopted Amex’s BIP program which coupled with an increase in prepayments to $168 from $161, over the past 12 months, has been catalysts to our cash conversion success measured by DSO moving from 58 a year ago to 49.

Our primary uses of cash are for payments to field talent, corporate and staff employees, related payroll liabilities, operating expenses, 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 other borrowing interest; cash taxes; and debt payments.

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Since we are an EOR with the majority of contracted talent paid as W-2 employees who are paid known amounts, but on inconsistent schedules; our cash inflows do not typically align with these required payments, resulting in temporary cash challenges, which is why we employ factoring.

Vivos Debtors as of June 30, 2024 had notes receivable totaling $5,766 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.

On April 22, 2024, MMG received a refund of $288 from the IRS. The proceeds were accrued in the first quarter since the credits were for past tax events.

As of June 30, 2024, our working capital was $7,592 compared to $7,913 at end of December 2023 and $7,783 at the end of March 2024, and $8,220 and the end of June 2023. Our adjusted working capital at the end of June 2024, excluding the notes receivable related to the Vivos Debtors, totals $1,826 compared to $2,412 at the end of 2023, 2,212 at the end of the first quarter 2024.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Risk Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the President and Chief Financial Officer concluded that the disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal controls over financial reporting, known to the Chief Executive Officer and Chief Financial Officer that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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RELIABILITY INC.

OTHER INFORMATION

June 30, 2024

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

A series of legal actions and hearings took place starting in March of 2020 with the Vivos Group over Merger agreement violations and Vivos Group debt obligations. Arbitration was agreed to in the fall of 2021 by both the Vivos Group and MMG with the proceedings commencing in February 2022.

On August 31, 2022, the arbitrator issued the Award with the Company and MMG prevailing on their claims. The awards included citing of 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 aggregate amount of the Awards totaled $7,779 as of June 30, 2024.

The May 17, 2023 award also appointed a Receiver whose primary function is to collect the contract and fraud damages, including costs, expenses, and fees provided in the awards.

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.

The following represents legal proceedings where Vivos Group borrowings impact MMG:

In September 2022, MMG learned that a Vivos IT, LLC lawsuit against SWC in May 2019 included MMG as a plaintiff. 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 MMG management or to Reliability before the Merger which closed on October 29, 2019.

MMG counsel filed a motion to add 4 parties to a counterclaim (HCRN, M&M, 360 IT and US IT). The court approved our motion, and all 4 parties were added. MMG has since released HCRN from the counterclaim. SWC filed a motion for summary judgement and on March 18, 2024 MMG responded, opposing the motion. On July 24, 2024 the court denied SWC’s motion for summary judgement related to their counterclaim.

Item 1a. Risk Factors

In addition to the other information set forth in this Quarterly Report, shareholders should carefully consider the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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We are currently engaged in substantial and complex litigation and collection of an arbitration award with the Vivos Group, the outcome of which could materially harm our business and financial results.

As more fully described in Note 6 (Commitments and Contingencies) of the Notes to Unaudited Consolidated Financial Statements, we are currently engaged in litigation and arbitration with the Vivos Group. The arbitration was brought by the Company to enforce its rights under the Merger Agreement.

The litigation and arbitration are substantial and complex, and they have caused and could continue to cause us to incur significant costs, as well as distract our management over an extended period. The litigation and arbitration may continue to substantially disrupt our business, and we cannot assure you that we will be able to resolve the litigation on terms favorable to us in any definitive time frame.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits:

The following exhibits are filed as part of this report:

31.1	CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2	CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1	CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RELIABILITY INCORPORATED (Registrant)
August 13, 2024	/s/ Nick Tsahalis
	Reliability President and Chief Executive Officer
	/s/ Mark Speck
	Secretary and Chief Financial Officer

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Index to Exhibits

Exhibit No.	Description
31.1	CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2	CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1	CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections

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