RELIABILITY INC. AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

For the Nine Months Ended September 30, 2021, and 2020

(amounts in thousands, except per share data)

The accompanying notes are an integral part of these statements.

RELIABILITY INC. AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

The accompanying notes are an integral part of these statements.

RELIABILITY INC. AND SUBSIDIARY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(amounts in thousands)

The accompanying notes are an integral part of these statements.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021March 31, 2022

(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, Permanent Direct Placements, and Video and Multimedia Production which provides script to screen media talent. Our Staffing segment provides skilled field talent on a nationwide basis for Media, IT and finance and accounting client partner projects. Our Staffing segment occasionally received requests for (direct) placements. Because of an uptick in direct hire requests in 2021, factoring in the much higher margins that business derives, MMG decided to add Permanent (Direct) Placement as a stand-alone business segment. Video Production involves assembling and providing crews for special projects that can last anywhere from a week to 6 months.

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

On November 9, 2016, Linda Maslow sold the business to Vivos Holdings, LLC the previous sole shareholder of MMG and their transferees who were issued shares of Reliability Common Stock include(“Vivos Holdings”) owned by Dr. Naveen Doki (“Dr. Doki”) and Silvija Valleru Shirisha Janumpally (through Judos Trust and Federal Systems), and Kalyan Pathuri (through Igly Trust) together own approximately 84% of the issued and outstanding shares of Reliability Common Stock. Vivos Holdings, LLC and Vivos Real Estate Holdings, LLC and Mr. Doki have outstanding notes with MMG that date back to acquisition of MMG in November 2016 (See Note 9) (collectively “Vivos Debtors”(“Ms. Valleru”).

In 2018, Vivos Holdings and several other Vivos companies, (“Vivos Group”) engaged an investment banker who approached management of Reliability to discuss a potential reverse merger transaction. The other investors who collaborated on a share swap of MMG for other Vivos companies were Shirisha Janumpally (“Mrs. Janumpally”), wife of Dr. Doki, and Kalyan Pathuri (“Mr. Pathuri”), husband of Silvija Valleru.

These 4 individuals, Dr. Doki, Mrs. Janumpally, Mr. Doki,Pathuri, and Mr. PathuriMrs. Valleru also have common ownership combinations in a number of other entities [Vivos Holdings, LLC. Vivos Real Estate Holdings, LLC (“VREH”), Vivos Holdings, Inc., Vivos Group, Vivos Acquisitions, LLC., and Federal Systems, LLC], (collectively referred to herein as “Vivos Group”).

The reverse merger was consummated on October 29, 2019. As a result of the Merger, the Vivos Group (Vivos Holdings LLC, officially) acquired approximately 84% of the issued and outstanding shares of Reliability which were distributed by Vivos Holdings LLC.

On October 29, 2019, MMG became a wholly owned subsidiary of Reliability by merging R-M Merger Sub, Inc., a Virginia corporation and a wholly owned subsidiary of Reliability, with and into Maslow, with MMG being the surviving corporation (the “Merger”). The Merger is more fully described in our Current Report on Form 8-K filed on October 30, 2019.

The Company ceased to be a “shell” company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) by virtue of its ownership of MMG following the Merger. The acquisition of MMG also resulted in a “change in control” of Reliability.

On or about February 17,25, 2020, the Company, as plaintiff, filed a complaint with the Circuit Court of Montgomery County, Maryland against Vivos Debtors (“Holdings, LLC, Vivos Default Claim”Real Estate Holdings, LLC and Dr. Doki (collectively “Vivos Debtors”) (See Note 7).

, to enforce Maslow’s rights under certain promissory notes and a personal guarantee made by the Dr. Doki. On or about May 6, 2020, the Vivos DebtorsDefendants filed a counterclaim and otherthird-party complaint for Damages, declaratory and injunctive Relief and jury Demand (the “Counterclaim”).

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(amounts in thousands, except per share data)

The Company also began pursuing arbitration in New York in 2020 which was the contractual remedy for breaches of the Merger agreement between MMG and Reliability. It is the Company’s contention that the Vivos Group members, specifically. Kaylan Pathuri (“Pathuri”), Judos Trustfailed to disclose several material pieces of information to Reliability management pre-merger as was required by Shirisha Janumpally, its trustee (“Judos”) and Igly Trust by Kaylan Pathuri, its trustee, (“Igly”) responded tothe Merger agreement. Additionally, the Vivos Default Claim withGroup declined to honor a Counterclaimnumber of commitments made to Reliability including a $3,000 promissory note and Third-Party Complaint (the “Vivos Default Counterclaim”)an agreement to shield the Company from their personal debt per the “Liquidation Agreement” (See 1A and Item 3). Per the Merger Agreement, these breaches can lead to a loss of up to all shares in Reliability for the Vivos group.

On June 5,December 23, 2020, Reliability commenced an arbitration seeking to address purported merger violations beforeat a hearing in the American Arbitration Association (“AAA”). The remedy forMaryland Circuit Court of Montgomery County, Maryland, a motion by the nature and extent of the alleged violations, per the merger agreement, is the forfeiture of Vivos Group shares.to compel a shareholder meeting was summarily dismissed. On January 20, 2021, Defendants and Counter/Third-Party Plaintiffs, Vivos, VREH, Dr. Doki, Mr. Pathuri, Igly, Judos, by counsel, filed a Notice of Appeal on the dismissal. However, the deadline to pursue the appeal lapsed absent additional filings by the Vivos Group.

On July 21, 2021, MMG settled the obligation which with it had been committed by Vivos Holdings, LLC in July 2018, with Libertas Funding, LLC and Kinetic for $475. This debt belonged to Vivos Holdings LLC, and the aforementioned Liquidation Agreement, had been created as a safeguard to shelter MMG should Vivos Holdings, LLC default, which actually transpired prior to the Merger closing in October 2019. (See Section 1A).

On September 7, 2021, the Company entered into Arbitration and Tolling Agreements with alleged shareholder Naveen Doki, M.D., and his affiliatesthe (the “Agreements”) Vivos Group and all other persons who were parties to the pending litigation previously reported in the Texas, New York and Maryland courts and before the American Arbitration Association. The Agreements call for the stay or dismissal of the pending litigation, with the parties agreeing to resolve their disputes before a single arbitrator in Maryland (See Note 7).Maryland.

On March 21, 2022, the Company began its arbitration proceedings against the Vivos Group. MMG contends the Vivos Group committed merger violations which could result in relinquishment in whole or in part shares of Company common stock received by the Respondents in connection with the Merger. We anticipate an arbitration decision in the third quarter 2022.

We refer below to the disputes between Reliability and the Vivos Group as the “Vivos Matter.”

“Upon a 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.”

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. These

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S (“U.S. GAAP”) for interim financial informationUnited States and with instructions to Form 10-Q. Operating resultsthe rules of the interim periods are not necessarily indicative of financial results for the full year. These unaudited consolidated financial statementsSEC and should be read in conjunction with the audited consolidated financial statements and notes thereto includedcontained in our Form 10-K. In the Company’s Annual Report on Form 10-Kopinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the year ended December 31, 2020. In preparing these unaudited consolidated financial statements, management is required to make estimates and assumptions that affectperiods presented have been reflected herein. The results of operations for the reported amounts of assets and liabilities asperiods presented are not necessarily indicative of the date ofresults to be expected for the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s consolidated financial statements relate to revenue recognition, allowances for doubtful accounts, recoverability of notes receivable, useful lives for depreciation and amortization, loss contingencies, allocation of purchase price in connection with business combinations, valuation allowances for deferred income taxes, and the assumptions used for web site development cost classifications.full year.

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.

Concentration of Credit Risk

For the nine months ended September 30, 2021, 26.7% of revenue came from AT&T Services, Inc. (inclusive of its DirecTV division) (“AT&T”), 15.7% from Goldman Sachs, 12.8% from Janssen Pharmaceuticals (which includes workforce partners Ortho McNeil and Johnson & Johnson), and 11% from Morgan Stanley. Combined, this totals 66.4% of revenue. AT&T, Goldman Sachs, Janssen, and Morgan Stanley accounted for 27.6%, 8.8%, 10.9% and 5.7%, respectively, in revenue for the same time period ended September 30, 2020. No other client has exceeded 10% of revenues in 2021.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021March 31, 2022

(amounts in thousands, except per share data)

Concentration of Credit Risk

For the three months ended March 31, 2022, 24.2% of revenue came from AT&T Services, Inc. (inclusive of its DirecTV division) (“AT&T”), 21.4% from Goldman Sachs, and 11.2% from Janssen Pharmaceuticals (which includes workforce partners Ortho McNeil and Johnson & Johnson). Combined, this totals 56.8% of revenue. AT&T, Goldman Sachs, Janssen, and Morgan Stanley accounted for 24.6%, 15.4%, 9.2% and 13.6%, respectively, in revenue for the same period ended March 31, 2021. No other client has exceeded 10% of revenuesin 2022 or 2021.

NOTE 2. LIQUIDITY AND GOING CONCERN

Going Concern

Management considers on a regular basis, the Company’s ability to continue as a going concern. The factors which have impacted the business and our liquidity are;

All these conditions noted and factored in above but from awith the prevailing operational view thererisk being that the arbitration (see Item 1) outcome is stillnot in the Company’s favor, and the $5,039 in notes receivable is not realized in full, part, or all, creates substantial doubt about the Company’s ability to continue as a going concern asconcern.

Additionally, from an operational view the underlying business has yet to fully recover from COVID-19 with current quarterly comparative revenue levels down as much as 35%47% from 2019 standards. There is also the risk that the arbitration (see Note 7) outcome is not in the Company’s favor, and or the $standards.

4.9M in notes receivable is not realized in a timely fashion. As far as cash equivalents, once the $

3,221 in ERC is fully refunded, the Company will have sufficient capital resources, but these are based on government stimulus programs. Therefore, there can be no assurances that the Company will be successful in managing the impact of the foregoing or its ability to maintain sufficient liquidity over a period of time that will allow it to continue as a going concern. The accompanying interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liability that maymight result from the possible inability of the Company to continue as a going concern.outcome from these uncertainties.

The Company’s ongoing liquidity positionCompany is facing pressures due toquoted on the loss of business resulting fromOTC Marketplace under the COVID-19 pandemic, as well as ongoing outside legal costs related to Doki Group disputes and increased pressure to make cash payments for Doki group MCA obligations, which ultimately took place on July 21, 2021, pursuant to the Settlement Agreements (filed as exhibits 10.4, 10.5 and 10.6 the Company’s Current Report on Form 8-K filed on October 30, 2019), prior to the Company’s anticipated liquidation of the shares of Company Common Stock pledged pursuant to the Agreement for the Contingent Liquidation of the Common Stock of Reliability Incorporated (as successor in interest to MMG Media Group, Inc.), dated October 28, 2019 (the “Liquidation Agreement”) (filed as exhibit 10.30 to the Company’s Current Report on Form 8-K filed on October 30, 2019)symbol “RLBY”. The Vivos Group that are the counterparties to the Liquidation Agreement are not cooperating with the Company to liquidate the shares subject thereto as contemplated thereby. No assurance can be given that the Company will return to its pre-pandemic revenue levels and how long it will take to enforce the requirements of the Liquidation Agreement. As a result, the Company could face hurdles maintaining sufficient liquidity to continue to operate, in which case the Company might be forced to liquidate or seek to reorganize under applicable bankruptcy statutes.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021March 31, 2022

(amounts in thousands, except per share data)

The Company is quoted on the OTC Marketplace under the symbol “RLBY”.

NOTE 3. ACCOUNTS RECEIVABLE

Accounts Receivable can be broken down as follows

SCHEDULE OF ACCOUNTS RECEIVABLE

NOTE 4. RECENTLY ISSUEDSUMMARY OF SIGNIFICANT ACCOUNTING PRONOUNCEMENTSPOLICIES

Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting, that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR), which will be discontinued by the end of 2021. Also, in January 2021, the FASB issued ASU No. 2021-01 Reference Rate Reform (Topic 848)—Scope, to clarify that cash flow hedges are eligible for certain optional expedients and exceptions for the application of subsequent assessment methods to assume perfect effectiveness as previously presented in ASU 2020-04. The amendments in this update are effective for us immediately and may be applied through December 31, 2022. The adoption of this update is not expected to have a material impact on our consolidated financial position and results of operations.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this update will be effective for the Company beginning with fiscal year 2023, with early adoption permitted. The adoption ofCompany adopted this during 2021 resulting in an impairment charge as stated in the amendments in this update is not expected to have a material impact on our consolidated financial position and results of operations.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(amounts in thousands, except per share data)statements.

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.

NOTE 5. DEBT

Convertible Debt

The Company had notes payable in the amount of $890 as of December 31, 2019, pursuant to a convertible debt offering that MMG commenced June 13, 2019. Pursuant to this agreement, MMG issued to each individual a warrant for 0.5 shares of Company Common Stock and a convertible promissory note of same date in the initial principal amount of $50, in exchange for $50. The notes bore interest at 12% per year with the balance becoming due within 1 year from the issuance date unless earlier converted into shares of Company Common Stock upon the issuance by Reliability of Company Common Stock for gross proceeds of at least $5,000. Since no conversion occurred, the notes were paid in full as they became due over a 3-month period between June 2020 and September 2020.

Warrants can only be redeemable if the proceeds of $5,000 are secured within 5 years of note issuance, which expires correspondingly to each note between June and October 2024.

Tax Liabilities

When MMG was initially acquired by Vivos Holdings, LLC in December 2016, MMG’sthe 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 four4 years thatwhich was accounted for in subsequent tax returns through 2019. In 2021 MMG has been working withcompleted settlement of the IRS to pay. estimated $860 tax liability caused by the Vivos Group in 2017, paying the final estimated portion of $300 in 2021.

As of September 30, 2021,March 31, 2022, the Company’s overall tax liability was $1,030688 compared to $292517 asat end of December 31, 2020. The Company also has accrued current incremental income taxes of $1,075 YTD, $396 of which was recordedsame period in Q3, as of September 30, 2021, relating to its current operations.2021.

Factoring FacilitiesFacility

Triumph Business Capital

On November 4, 2016, MMGthe Company entered into a factoring and security agreement with Triumph Business Capital (“TBC”Triumph”). Pursuant to the agreement, MMGthe Company received advances on its accounts receivable (i.e., invoices) through TBCTriumph to fund growth and operations. The proceeds of this agreement were used to pay operating costs of the business which include employee salaries, vendor payments and overhead expenses. On January 5, 2018, the agreement was amended to lower the factoring fee and interest rate for a term of one year.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(amounts in thousands, except per share data)

The agreement was amended again on January 19, 2018, to increase the maximum advance rate to $5,500. In January 2020, a new agreement was negotiated with Triumph lowering advance rate from 18 basis points to 15 and the interest rate from prime plus 2.5% to prime plus 2%. The amount of an invoice eligible for sale to Triumph went from 90% to 93%. The agreement which previously renewed annually, is now month to month. MMGThe 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, 2021,March 31, 2022, the required amount was 10%10%. Any excess of the reserve amount is paid to MMGthe Company on a weekly basis, as requested. If a reserve shortfall exists for a period of ten-days, MMGthe Company is required to make payment to the financial institution for the shortage.

Accounts receivable (A/R)receivables were sold with full recourse. Proceeds from the sale of receivables were $1,7562,811 for the three months ended September 30, 2021,three-month period ending March 31, 2022, compared to $10,1751,332 infor the same period ending September 30, 2020.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(amounts in thousands, except per share data)

Maslow’son March 31, 2021. The total outstanding balance with TBCunder the recourse contract was $1,590 on March 31, 2022, compared to $946 as of September 30,December 31, 2021, was $939 and $2,999592 on DecemberMarch 31, 2020.2021.

The Factoring Facilities areFacility is collateralized by substantially all the assets of MMG.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,March 31, 2022, and 2021 and 2020 comparatively totaledtotalled $1529 and $3032, respectively.

NOTE 6. VARIABLE INTEREST ENTITY (“VIE”)

In December 2019, the Company’s executive management learned that prior to the Merger, in January 2017, one of the Company’s related parties, on behalf of MMG, executed a guarantee of obligations of Vivos Real Estate Holdings, LLC (“VREH”), under a mortgage loan for the purchase of the property at 22 Baltimore Rd., Rockville, Maryland. MMG leased this space on market terms. MMG challenges its status as a guarantor on the building.

Although the Company has neither any decision-making authority over VREH, nor financial interest in the operations of VREH, the Company was required to consolidate its financial statements with those of VREH as it was considered the primary beneficiary of the VIE. As a result of the Company terminating the lease on April 30, 2020, VREH was no longer to be considered a VIE after April 30, 2020.

The potential financial exposure to loss as a guarantor could equal all the book value of the related party mortgage loan payable, a total of approximately $1,734 as of June 30, 2021, (the latest information made available to the Company), with $21 unpaid in 2021 as VREH was behind on two of their mortgage payments. The loan is deemed to be in default with outstanding taxes due of $7, a 2019 DSC ratio violation, failure to submit updated financials, and subsequent liens without bank written consent for $250 to another Vivos Group creditor. To date, the Company has not been called on for any loan repayment guarantee. The Company believes the building valuation is at or near the current mortgage amount.

NOTE 7.6. COMMITMENTS AND CONTINGENCIES

The Company is engagedThere are a number of debts and confessions of judgement (“COJ”) related to the Vivos Group that included MMG as a co-signer or guarantor at some stage in the Vivos Group debt process from timeNovember 2016 through October 29, 2019, when Vivos Holdings LLC owned Maslow.

In December 2019, the Company’s executive management learned that prior to timethe Merger, in legal matters and proceedings arising out of its normal course of business, and currently also is involved in litigation outsideJanuary 2018, one of the normal courseCompany’s related parties, on behalf of business. The Company establishesMaslow, executed a liability related to its legal proceedings and claims when it has determined that it is probable thatguarantee of obligations of Vivos Real Estate Holdings, LLC (“VREH”), under a mortgage loan for the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the naturepurchase of the loss contingencyproperty at 22 Baltimore Rd., Rockville, Maryland. MMG leased this space on market terms. This obligation had not been included in Maslow’s financial statements and were not separately disclosed prior to the estimated range of possible loss, or include a statement that no estimate of the loss can be made.Merger.

On September 28, 2018,March 3, 2022, MMG received a notice of default, acceleration, and demand for payment in full, from FVCBank due to incurable events of default on behalf of Borrower, Vivos Real Estate Holdings LLC. Per the default notice, “As of March 2, 2022, the total indebtedness due and owing under the Loan (the ‘‘Debt’’) is $1,743 consisting of an unpaid principal balance in the amount of $1,703 accrued and unpaid interest in the amount of $7, deferred payments in the amount of $20 and late fees in the amount of $12 plus prepayment penalties and attorneys’ fees, costs and expenses,” less setoff fees of $16. MMG believes it has grounds to contest it being a guarantor on the loan.

Credit Cash: MMG has not been formally notified of an obligation to pay Credit Cash fileddue to a complaint against MMG,now known default on Vivos Holdings LLC, Vivos Acquisitions, LLC, Dr. Doki, Dr. Valleru (the “Credit Cash Defendants”) and other defendantsGroup’s COJ.

On October 9, 2018, Maslow Media Group, Inc. was named as a defendant in an Affidavit of COJ filed in the United States CircuitSupreme Court of Montgomery County, Maryland for the DistrictState of New Jersey for, among other things, breach of contract of the MMG and HCRN Credit Facilities and their respective guarantiesYork in relation to a case brought by Hop Capital against members of the November 15, 2017, agreement (the “Credit Cash Complaint”). On October 30, 2018, Credit Cash filedVivos Group, which had collectively agreed to pay a motionsum of $400 to intervene in an action pending in New York State, Monroe County, filedHOP Capital. Maslow Media Group, Inc. is named as one defendant among six other defendants. The claim brought by HCRN and LE Finance, LLCHOP Capital against the Credit Cash Defendants, and other defendants (“NY State Action”). On December 10, 2018, the Credit Cash Defendants entered into a settlement agreement for the purpose of settling certain claims related to the Credit Cash Complaint only. Pursuant to the settlement agreement, certain repayment terms were agreed upon between Credit Cash and the Credit Cash Defendants, but Credit Cash did not relinquish the right to pursue any claims related to the NY State Action, nor to pursue any remedies against any of the Credit Cash Defendantsin this case is in relation to the November 15, 2017, agreement. Naveen Doki, Kalyan Pathuri, Shirisha Janumpally, and Federal Systems, LLC, (“Credit Cash Vivos Group”) executed and delivered to MMG that certaina Merchant Agreement for the Contingent Liquidation of the Common Stock of MMG , dated as of October 28, 2019 (the “Liquidation Agreement”), pursuant4, 2018, to which the Credit Cash VivosMaslow Media Group, pledged toInc. was not a party. As such, MMG the shares of Company Common Stock they receivedcontends that being named in the MergerAffidavit of COJ as a defendant was made in error and is currently seeking to provide the capital required to satisfy the Credit Cash Defendants’ obligations under the Settlement Agreements. Membershave its name removed from Affidavit of the Credit Cash Vivos Group misrepresented upon the executionCOJ as a defendant. As of the Liquidation Agreement the status of its obligations under the Settlement Agreement, which were, in fact, then in default. To date the Credit Cash Vivos GroupMarch 24, 2022, we have not cooperated with the Company to monetize those shares as contemplated by the Liquidation Agreement. The Company will take appropriate action to enforce its rights under the Liquidation Agreement, which actions will be dictated in part by the outcome of the Merger Arbitration wherein relinquishment of shares for certain claims may be an applied remedy. On or about March 16, 2020, Credit Cash entered its New Jersey confession of judgment with the Circuit Court of Montgomery County, Maryland.been contacted again on this matter, nor have we been notified on any developments.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021March 31, 2022

(amounts in thousands, except per share data)

On October 9, 2018, MMG was named as a defendant along with six other defendants, all of which are entities related to the Vivos Group, in an Affidavit of Confession of Judgment (“COJ”) filed in the Supreme Court of the State of New York in relation to a case brought by Hop Capital, wherein the defendants collectively agree to pay a sum of $400 to Hop Capital. The claim brought by Hop Capital against the defendants in this case is in relation to a Merchant Agreement dated October 4, 2018; an agreement to which MMG was not a party. As such, MMG contends that being named in the COJ as a defendant was made in error and is currently seeking to have its name removed from the COJ. As of October 2021, we have not been contacted again on this matter, nor have we been notified on any developments The Company will defend itself from this case.

On or about February 17, 2020, the Company, as plaintiff, filed a complaint with the Circuit Court of Montgomery County, Maryland against Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC and Naveen Doki (“Vivos Debtors”), to enforce MMG’s rights under certain promissory notes and a personal guarantee made by the Vivos Debtors (“Vivos Default Claim”). This was settled on October 1st, 2021 with both parties mutually releasing each other of any claims

On February 28, 2020, Healthcare Resource Network, LLC (“HCRN”) filed a complaint against MMG in the Circuit Court of Montgomery County, Maryland alleging that MaslowMMG participated with members of the Vivos Group to financially harm the plaintiff. The plaintiff has not specified any alleged damage caused by MMG and the Company believes any claims are without merit. The Company will defend itself from this case.

On March 16, 2020, CC Business Solutions, a division of Credit Cash NJ, LLC domesticated a foreign judgement in the Montgomery County Circuit Court system against HCRN, MMG, Vivos Holdings, LLC, Vivos Acquisitions, LLC, Naveen Doki and Silvija Valleru. This foreign judgement relates to Vivos Holdings adding MMG as a guarantor on a loan made to HCRN which is in default by HCRN and Vivos Holdings. Foreign judgement total is $820. This judgement relates to the default on the settlement agreement dated December 10, 2018, referenced above in the Credit Cash Complaint.

On May 5, 2020, Libertas Funding, LLC (“Libertas”) domesticated a foreign judgement in the Montgomery County Circuit Court system against HCRN, MMG, Vivos Holdings, LLC, Vivos Acquisitions, LLC, Vivos IT, LLC, Vivos Global Services, LLC, Alliance Micro, Inc. and Naveen Doki. This foreign judgement from the State of New York relates to loans the Vivos Group took out by adding MMG additional collateral. This loan is currently in default. Foreign Judgement total is $229. Maslow settled with Libertas/Kinetic (both judgements) this summer for $475 (See last 2 paragraphs below).

On May 5, 2020, Kinetic Direct Funding (Kinetic”) domesticated a foreign judgement in the Montgomery County Circuit Court system against HCRN, MMG, US IT Solutions Inc., 360 IT Professionals, Alliance Micro, Inc. and Naveen Doki. This foreign judgement from the State of New York relates to loans the Vivos Group took out by adding MMG as additional collateral. This loan is currently in default. Foreign Judgement total is $579. There were 4 total loans in the settlement, with the 3 domesticated judgements in Montgomery County circuit court relating to MMG totaling $1,038. Maslow settled with Libertas/Kinetic (both judgements) this summer for $475 (See last 2 paragraphs below).

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(amounts in thousands, except per share data)

On or about May 6, 2020, the Vivos Debtors and other Vivos Group members, specifically. Mr. Pathuri, Judos, and Igly responded to the Vivos Default Claim with the “Vivos Default Counterclaim.Counterclaim”. The Company continues to believe that the Counterclaim has no merit and had planned tois vigorously defenddefending itself and its indemnified officers, directors and other parties as permitted by the Company’s organizational documents, whenvia a trial on this matter was scheduled to begin on October 4, 2021, butMarch 2022 arbitration hearing which both parties agreed on September 7,^th, 2021, to resolve their disputes before a single arbitrator in Maryland, which calls forMaryland. The hearing portion began on March 21 and has since concluded. There are other phases in progress. A decision isn’t anticipated until the stay or dismissal of the pending litigation. The agreement provides 150 days to resolve all pending matters through binding arbitration in Maryland.third quarter, 2022.

On or about June 5, 2020,At the present time, the Company submittedis uncertain as to whether any of the above items will have a Claimant’s Notice of Intention to Arbitrate and Demand for Arbitration (the “Merger Arbitration”) with the American Arbitration Association in New York, and to the Respondents thereto: Naveen Doki; Silvija Valleru; Shirisha Janumpally (individually and in her capacity as trustee of Judos Trust); Kalyan Pathuri (individually in his capacity as trustee of Igly Trust) and Federal Systems (the “Merger Respondents”). The Merger Arbitration alleges that the Merger Respondents breached the Merger Agreement in a number of significant respects and may have committed fraud in connection with the Merger. The Company is seeking damages, which if granted will likely be the remedy set forth within the Merger Agreement which is in whole or in part shares of Company Common Stock received by the Merger Respondents in connection with the Merger. The Company has brought a motion to compel the Arbitration which is currently being decided by the Federal Courts in New York, but the Respondents countered with a motion to dismiss Reliability’s Petition to Compel Arbitration to the Federal Courts in New York. On August 4, the US District Court, Southern District of New York, denied the Respondents motion to dismiss.

On June 12, 2020, Igly Trust, a Vivos entity, asked the Texas court for an injunction requiring the Company to provide a shareholder list and to hold a shareholder meeting. On October 20, 2020, the Texas court denied the injunction but, incongruously, dismissed all the Vivos plaintiffs for lack of personal jurisdiction. The Company appealed the dismissal because the court had jurisdiction over Igly Trust once it made affirmative claims in Texas and because the Court’s order denying the injunction is an important precedent for establishing that the directors under Texas law retain control of shareholder lists and determining the timing of shareholder meetings.

On December 23, 2020, at a hearing in the Maryland Circuit Court of Montgomery County, Maryland, a motion by the Vivos Group to compel a shareholder meeting was summarily dismissed. On January 20, 2021, Defendants and Counter/Third-Party Plaintiffs, Vivos, VREH, Doki, Pathuri, Igly, Judos, by counsel, filed a Notice of Appealmaterial impact on the dismissal. However, the deadline to pursue the appeal lapsed absent additional filings by the Vivos Group.

On July 21, 2021, Maslow settled the obligation which with it had been committed by Vivos Holdings, LLC in July 2018, with Libertas and Kinetic for $475. The agreement which included $100 in legal fees, released MMG from all claims judgements and obligation against MMG but did not release Naveen Doki, Silvija Valleru, Judos Trust, Igly Trust, Srinivas Kalidindi, Shirisha Janumpally, Federal Systems, Kalyan Pathuri, US IT Solutions Inc., 360 IT Professionals Inc., Alliance Micro Inc. Viv’s IT LLC, Vivos Global Holdings LLC, Vivos Acquisitions LLC, or Vivos Holdings from the remaining obligation. This debt belonged to Vivos Holdings LLC, and the aforementioned Liquidation Agreement, (See Note 2) had been created as a safeguard to shelter MMG should Vivos default, which actually transpired prior to the merger closing in October 2019.

Maslow felt compelled to settle Vivos’ Holdings at this time due to 1) added pressure placed by Libertas to collect a balance that now exceeded $1,700, 2) a desire to clear liens against the Company to improve its credit status, and 3) its ability to negotiate a much lower and separate settlement.

Maslow is pursuing remedy for the $475 payment to Libertas with the Vivos Group through the arbitration process. In the meantime, the $475 has been added the Vivos Debtor balance which as of September 30, 2021, is $4,944.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(amounts in thousands, except per share data)their consolidated financial statements.

NOTE 8.7. EQUITY

The Company’s authorized capital stock consists of 300,000,000 shares of common stock, with 0 par value. All authorized shares of Company Common Stock are issued and outstanding.

NOTE 9.8. 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: (i) $1,400 was paid at settlement with proceeds from MMG and (ii) a promissory note to pay the remaining $350 (“Vivos/MMG Purchase Agreement”). The promissory note was to be paid in twenty-four equal installments, including interest at 4.5%, in the amount of approximately $15, commencing six months after closing, with the last payment on March 1, 2019.2019. These payments were paid by the MMG on behalf of the Vivos. Vivos Debtors. The Vivos Debtors subsequently entered into a promissory note receivable with the MMG, described below, for the full stock purchase price. No payment has ever been made against this note.note and between 2018 to present, there has been $2,503 in additional borrowing.

Notes Receivable

The Company has notes receivable from Vivos Holdings, LLC and VREH, a member of Vivos Group, both related party affiliates due to their ownership percentage in the Company. In January 2021, MMG began applying the legal minimum rate of interest which per Virginia statute is 8.0% on two of the three defaulted notes receivable below, whichbelow. Per the Code of Virginia, the legal rate of interest shall be implied when there is an obligation to pay interest and no express contract to pay interest at a specified rate. However, it was determined that the two notes had clauses capping the default interest at 4.5% and 5.5% respectively. The rate adjustment for the allowed periods were so eligible.made using the eligible agreement rates.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(amounts in thousands, except per share data)

In connection with the Vivos/MMG Purchase Agreement, on November 15, 2016, MMG executed a promissory note receivable with Vivos Holdings LLC in the amount of $1,400. As defined by the Vivos/MMG Purchase Agreement, the loan consists of two periods, whereby the first period from November 15, 2016, until September 30, 2018, no principal or interest payments were required. Interest would accrue monthly and a new loan in the amount of $1,773 would be subject to a second loan period. During the second loan period, interest shall be paid in 20 equal consecutive payments, quarterly. Principal plus any unpaid interest is due September 20, 2023. Interest during both loan periods accrues at a rate of 2.5%. Additionally, monthly payments of $15 are made on behalf of Vivos Holdings, Inc. to the seller by MMG. These payments, plus any other payments made by MMG on behalf of Vivos Holdings, LLC, are added to the principal balance of the promissory note receivable (“Vivos/MMG Purchase Agreement Note Receivable”). In 2018, all quarterly interest payments to be made in phase 2 were offset by the management fees due to Vivos Holdings.

In January 2021, MMG began applying the legal rate of interest which per Virginia statute is 8.0% on two of the three defaulted notes receivable, which were eligible. Only the $750 September 5, 2019, note is not eligible for a default rate of interest but is eligible for recovery of legal fees. As of September 30, 2021,March 31, 2022, the total outstanding balance on this note was $2,7673,420 which includes accrued interest receivablefor period of $5538. The actual funds (additional eligible interest and legal fees) sought may be greater than what is represented herein per GAAP.

On November 15, 2017, MMG executed an intercompany promissory note receivable with VREH in the amount of $772. As defined by the agreement, the loan consists of two periods, whereby the first period from November 15, 2017, until September 30, 2018, no principal or interest payments are required. During the first loan period, interest accrued monthly and a new loan amount of $781 will be subject to a second loan period. During the second period, interest is payable in 20 equal consecutive installmentsinstalments and the principal balance plus accrued and unpaid interest is due September 30, 2023. Interest during both periods accrues at a rate of 3.5% annually. In 2018, all quarterly interest payments to be made in Phase 2 were offset by the management fees due to Vivos Holdings, LLC. In addition, principal payments totaling $30 were made by the Vivos Group. As of September 30, 2021,March 31, 2022, the total outstanding balance was $774823. which includes accrued interest receivablefor period of $1511.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(amounts in thousands, except per share data)

On June 12, 2019, MMG entered into a Personal Guaranty agreement with Dr. Doki, pursuant to which Dr. Naveen Doki personally guaranteed to MMG repayment of $3,000 of the balance of the Promissory Note issued to Vivos Debtors on November 15, 2017, within the 2019 calendar year via cash, stock, or other business assets acceptable to the Company. Dr. Doki is a 5% or greater beneficial holder of Company Common Stock, and therefore is a related party.

As of February 2020, the Company filed a lawsuit against the majority shareholder, pursuant to the personal guaranty agreement for defaulting on the outstanding notes receivables.

In summary, the Vivos Group receivable totaled $4,258 on December 31, 2020, which included $2,007 of additional borrowings over the period between November 2016 and December 31, 2109.2019. As of September 30,March 31, 2022, and December 31, 2021, the receivable totaled $4,9445,039. and $4,985, respectively.

On September 5, 2019, MMG entered into a Secured Promissory Note agreement with Vivos, pursuant to which MMG issued a secured promissory note to the Vivos Group in the principal amount of $750.$750. The note bears interest at 2.5% per year and requires the Vivos Group to make monthly payments to MMG of $10beginning December 1, 2019, with balance due and payable on November 1, 2026. Upon an event of default, which occurs upon failure of Vivos to make any monthly payment due under the terms of the note, MMG has the right to declare the entire unpaid balance of the note due and payable. The note is secured by 30,000,000shares of Company Common Stock, which is due and payable upon a default by Vivos, which occurs upon failure of Vivos to make any monthly payment due under the terms of the note. In addition, both NaveenDr. Doki and Silvija Valleru personally guaranty the repayment of the note by Vivos. Naveenthe Vivos Group. Dr. Doki and Silvija Valleru were beneficial owners of Vivos and are also 5%5% or greater beneficial owners of Company Common Stock, which is qualified by the Merger Arbitration complaint. As of September 30,On December 31, 2021, the total outstanding balance was $780,790, which includes interest for period of $125. In JanuaryAs of March 31, 2021, MMG began charging the Maryland minimumtotal outstanding balance was $795, which includes interest rate by law allowed for defaulted totals as this note is in default and we are pursuing collection via the Vivos Default Claim.period of $5.

Debt Settlement Agreements

On August 10, 2017,July 21, 2021, MMG settled the obligation which Vivos Group executed a receivable advance agreementHoldings, LLC had obligated MMG to in July 2018, with Argus Capital Funding. MMG received a net advance of $487 in exchangeLibertas Funding, LLC and Kinetic for $705475 of MMG’s accounts receivable. Included in this loan is a fee of $218. The agreement was refinanced on November 15, 2017, when Vivos, and Vivos Acquisitions, LLC, via Dr. Naveen Doki and Dr. Silvija Valleru entered into an agreement with CC Business Solutions, a division of Credit Cash NJ, LLC (“Credit Cash”) pursuant to which Credit Cash advanced to the Company $600 in exchange for $780 of the Company’s accounts receivable, to be repaid fully by approximately May 20, 2019 (the “Maslow Credit Facility”).

In addition, pursuantOn March 6, 2022, MMG received a notice of default, acceleration, and demand for payment-in-full from FVCBank due to the same agreement, Credit Cash advanced to Healthcare Resource Network, a company owned by theincurable events of default on behalf of Borrower Vivos Group (“HCRN”) a credit facility in the principal amount of $1,005 (“HCRN Credit Facility”). Each of MMG, VivosReal Estate Holdings Vivos Acquisitions, LLC, Mr. Naveen Doki and Mrs. Silvija Valleru guaranteed the HCRN Credit Facility. To secure repayment of their guaranteed obligations, the Company and Vivos Holdings granted to Credit Cash a security interest in all their assets. On September 14, 2018, the Company defaulted on the Maslow Credit Facility. In addition, on same date, the HCRN Credit Facility went into default. As a result, repayment on both facilities were accelerated, with the full balance for each becoming immediately due and payable. On December 10, 2018, the Company, Vivos Holdings, Vivos Acquisitions, LLC, Mr. Doki, and Mrs. Valleru and Credit Cash entered into a settlement agreement in connection the November 15, 2017, agreement to govern the terms of the repayment of the HCRN Credit Facility and Maslow Credit Facility. Pursuant to the settlement agreement, the Company agreed to pay $10 per week until the entire balance of the Maslow Credit Facility was paid off. Pursuant to a subsequent agreement dated May 17, 2019, not involving the Company, Vivos Holdings and Vivos Acquisitions, LLC agreed to fully repay the HCRN Credit Facility via quarterly payments beginning September 30, 2019. The HCRN Credit Facility is still being repaid by Vivos Holdings, and as of October 29, 2019, had an outstanding balance of approximately $635.LLC.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021March 31, 2022

(amounts in thousands, except per share data)

The Company has a binding and enforceable agreement with certain shareholders permitting Maslow to liquidate up to the full amount of Maslow equity held by such shareholders to satisfy the shareholders’ obligations under the Settlement Agreements. As of December 31, 2019, the Company had repaid the outstanding balance due for the Maslow Credit Facility under the Settlement Agreement in full.

MMG was facing pressure to make cash payments pursuant to the Settlement Agreements prior to the Company’s anticipated liquidation of the shares of Company Common Stock pledged pursuant to the Liquidation Agreement. So, on July 21, 2021, as explained in Note 7, Maslow signed a settlement agreement with Kinetic Direct Funding, LLC and Libertas Funding, LLC for $475 in order to remove MMG from the remaining obligation owed by the Vivos Group which we were informed was $1,773.

The Vivos Group that are the counterparties to the Liquidation Agreement are not cooperating with the Company to liquidate the shares subject thereto as contemplated thereby. The anticipated arbitration process could have this matter settled in the first quarter 2022. However, no assurance can be given how long it will take to enforce the requirements of the Liquidation Agreement. Having made the payment may at some point present a liquidity issue for the Company.

On August 9^th, 2021, Reliability filed an additional claim in the Debt Collection Suit and Vivos Default Counterclaim in the Circuit Court of Montgomery County, Maryland against Doki, Valleru, Pathuri, Janumpally, Igly, and Judos, that the Respondents breached the Merger Agreement in a number of significant respects and committed fraud in connection with the Merger.

On September 7, 2021, the Company entered in Arbitration and Tolling Agreements with alleged shareholder Naveen Doki, M.D., and his affiliates and all other persons who were parties to the pending litigation previously reported in the Texas, New York and Maryland courts and before the American Arbitration Association. The Agreements call for the stay or dismissal of the pending litigation, with the parties agreeing to resolve their disputes before a single arbitrator in Maryland. The parties also agreed to maintain the status quo in corporate governance and related matters pending a final non-appealable judgment confirming any award in arbitration. The parties also signed a Tolling Agreement to toll the statute of limitations following the dismissal of a pending litigation.

Related Party Relationships

On October 29, 2019, prior to the Merger, pursuant to the Merger Agreement, NaveenDr. Doki and Silvija Valleru became beneficial owners of206,606,528and 51,652,908shares of RLBY Common Stock, respectively, equal to 68.9% and 17.2% of the total number of shares of RLBY Common Stock outstanding after giving effect to the Merger, respectively. The Company is seeking damages which if granted will likely be the remedy set forth within the Merger Agreement which is primarily the relinquishment in whole or in part shares of Company Common Stock received by the Respondents in connection with the Merger.

On June 27, 2019, prior to the Merger, MMG entered into a Securities Purchase Agreement with Hawkeye Enterprises, Inc., a company owned and controlled by Mark Speck (“Mr. Speck”), an officer and then director of Maslow.

Pursuant to this agreement, MMG issued to Hawkeye Enterprises 16,323 (on a post-Merger basis) shares of Company Common Stock, a warrant (as defined below) for 81,616 (on a post-Merger basis) shares of Company Common Stock and a convertible promissory note of same date in the initial principal amount of $50, in exchange for $50. The note bore interest at 12% per year, with the balance of $56 paid in full on June 26, 2020.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(amounts in thousands, except per share data)

On July 31, 2019, prior to the Merger, MMG entered into a Securities Purchase Agreement with Mr. Speck, the Company issued to this individual a Warrant for 81,616(on (on a post-Merger basis) shares of MMG Common Stock and a convertible promissory note of same date in the initial principal amount of $50, in exchange for $50. The note bore interest at 12% per year, with balance of $56 paid in full on August 4, 2020.

On July 31, 2019, prior to the Merger, MMG entered into a Securities Purchase Agreement with Nick Tsahalis, an executive officer and director of MMG. Pursuant to this agreement, the Company issued to this individual 32,646 (on a post-Merger basis) the shares of MMG Common Stock, and a Warrant to purchase 16,323 (on

a post-Merger basis) shares of the MMG Common Stock, and a Convertible Promissory Note of same date in the initial principal amount of $100, in exchange for $100. The note bore interest at 12% per year, with balance of $112 becoming due and paid in full on July 31, 2020.

On September 18, 2019, in anticipation of the closing of the Merger and intending that it be assumed by MMG after the closing of the Merger, Hawkeye entered into a letter of intent (the “LOI”) regarding the potential acquisition of a complementary business. MMG was then prohibited from entering into the LOI directly. In connection with the LOI, Hawkeye paid a non-refundable deposit of $75 with the understanding that after the closing of the Merger, the LOI would be assigned to the Company and the Company would reimburse Hawkeye for the deposit. On October 17, 2019, Hawkeye assigned, and MMG agreed to assume the LOI and reimbursed Hawkeye for the deposit. The reimbursement took place on May 8, 2020, totalingtotalling $83.

The term “warrant” herein refers to warrants issued by MMG and assumed by RLBYthe 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 at 10:00 a.m. Eastern time on first business day following the completion of the Qualified Financing (as defined below) and expiring at 5:00 p.m. Eastern time 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 RLBY Common Stockthe Company common stock shall be 120% of the average sale price of the RLBY Common StockCompany common stock across all transactions constituting a part of the Qualified Financing, with equitable adjustments being made for any splits, combinations or dividends relating to the RLBY Common Stock,Company common stock, or combinations, recapitalization, reclassifications, extraordinary distributions and similar events, that occur following one transaction constituting a part of the Qualified Financing and prior to one or more other transactions constituting a part of the Qualified Financing (the “Exercise Price”). Convertible note warrants were not valued and included as liability on balance sheet because of uncertainty around their pricing, value and low probability at this juncture in receiving the $5,000 trigger.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(amounts in thousands, except per share data)

On September 7, 2021, the Company entered in Arbitration and Tolling Agreements with alleged shareholder Dr. Doki, and his affiliates and all other persons who were parties to the pending litigation previously reported in the Texas, New York and Maryland courts and before the American Arbitration Association. The Agreements call for the stay or dismissal of the pending litigation, with the parties agreeing to resolve their disputes before a single arbitrator in Maryland. The parties also agreed to maintain the status quo in corporate governance and related matters pending a final non-appealable judgment confirming any award in arbitration. The parties also signed a Tolling Agreement to toll the statute of limitations following the dismissal of a pending litigation.

NOTE 10.9. BUSINESS SEGMENTS

The Company operates within 4industry segments: EOR, Recruiting and Staffing, Permanent (Direct) Placements and Video and Multimedia 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. Permanent Placements was added as a segment thisin the second quarter 2021 as the Company tookbegan to take on clients who will havedesired the Company source candidates for permanent hire on a regular basis. The Video and Multimedia Production segment provides Script to Screen services for corporate, government and non-profit clients, globally.

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(amounts in thousands, except per share data)

The following table provides a reconciliation of revenue by reportable segment to consolidated results for the three and nine months ended September 30,March 31, 2022, and 2021, and 2020, respectively:

For the three months ended September 30:March 31:

SCHEDULE OF RECONCILIATION OF REVENUE AND OPERATING INCOME BY REPORTABLE SEGMENT TO CONSOLIDATED RESULTS

For the Nine months ended September 30:

NOTE 11.10. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through NovemberMay 15, 2021,2022, 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 November 5, 2021, Congress passed H.R. 3684) infrastructure bill which terminated early the ERC program, making wages paid after Sept. 30, 2021, ineligible for the credit. It is expected that monies the Company has been credited in the 4^th quarter will reduce the 941 refund portions owed. The Company awaits IRS guidance on how this will be handled, given the retroactive nature of the legislation.MMG signed a 1-year extension with AT&T (until 3/31/2023) and a 2-year extension with DirecTV (until 3/31/2024).

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: the impact of the COVID-19 pandemic on us and our clients; our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses on terms acceptable to the Vivos Group or at all; 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, 2020,2021, 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, 2020,2021, 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.

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, 2020.2021.

Management’s Discussion included in the Form 10-K for the year ended December 31, 2020,2021, 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 20212022 operations; thus, the reader of this report should read Management’s Discussion included in Form 10-K for the year ended December 31, 2020.2021.

RESULTS OF OPERATIONS

Revenues

Revenues for the three months ended September 30, 2021,March 31, 2022, was $6,941$5,783 which was $740$11 or 12% greater0.2% less than for the same period in 2020 which was $6,201. EOR led the2021 with revenue uptick by delivering $5,705 or 82% of the quarterly revenue. This was a $831 or 17%, improvement over the third quarter in 2020. IQS the Company’sat $5,794. Video Production and IT staffing division saw a revenue decline of $410 or 82% fromhad the same period agreatest negative impact, falling $218 (comparatively) and $209 in year ago which offset the improvement in revenue by the Media Staffing division which was up $267 or 44% from the same period aover year ago. Permanent Placement which was not an earning center in 2020 contributed $38 which was $8 more than the second quarter. Although IT staffing revenues do not include IT direct placements made by the Company, which are considered Permanent Placement these are among the diverse resources we provide clients along with finance and accounting, and Media. The Company expects an increase in this activity as certain new clients are asking us for this service.quarterly revenue.

Video Production’s $236EOR grew, delivering $4,773 versus $4,500 in the first quarter ending March 31, 2021. The $273 or 6.1% increase resulted in EOR revenue garnering 82.5% of the quarterly revenue, which was $21 higher than the thirdconsistent with its fourth quarter in 2020 as new clients more than filled the void of those with declining demand due to COVID-19.2021 performance.

For the nine months ended September 30, revenue totaled $17,809 which was $2,390 less than a year ago, or a 12% decrease when comparedOur designated Video Production revenues formerly included adhoc freelance production/media staffing. With our staffing solutions expanding in 2022, we now separate all staffing solutions into its respective category. Video production will now only consist of project-based services. These solutions include global crewing, production management to the prior year. Business segments with the largest declinesinclude in the nine-month period ending September 30, 2021, when compared to a year earlier, were EOR at $1,678 or 11%studio and IQS which derived $1,593 less, a 76% decline. EOR was largely negatively impacted by COVID-19, which has seen some of our larger clients not yet return to full strength on site. IQS’s experienced the loss of its largest customer Lifetouch, which informed the Company in the fall of 2020 that it had decided to offshore their IT software quality assurance professionals effective January 1, 2021, resulting in declines of revenue of $874 year to date, when compared to same period in 2020. Meanwhile Tapfin, which is the vendor management solution for Abbott Labs, has converted a number of IQS’s employees to their staff and have not renewed other employee resulting in a year-to-date loss of revenue of $380. In order to offset these lost revenues, the Company has begun focusing business development resources on growing the IT staffing business in the second half of 2021.location projects as well as postproduction services.

This change which had an estimated $145 impact in the first quarter contributed to a $363 decline in Video Production revenue, to a total of $48, in the first quarter 2022 to its first quarter comparative of $411 in 2021. Conversely, Media Staffing has increased its nine-month revenue grew $250 or 41% to $2,158 from $1,445, a $713 or 49% improvement. This is due to$860 in the acquisition of 7 new clients by our revamped 6-month-old sales team, which added $546 and an increased demand for this service ($167) by our existing clients, driven by our expertise in delivering top rated media talent to our customers.first quarter 2022.

Video Production’s nine-monthPermanent Placement, which became a new segment in the second quarter 2021, posted $39 in revenue performance also saw an improvement toin the same period a year ago by $101, with revenues totaling $897.quarter ending March 31, 2022.

Cost of Revenue / Gross Profit

Gross profit for the three-month period ending September 30, 2021,March 31, 2022, was $803$730 representing 11.6%12.6% of revenues, which was $149 greater than$17 lower from the $747 in 2020’s thirdgross profit MMG earned in 2021’s first quarter when the gross margin was at 10.5%12.9%.

Media Staffing which saw a 44.2% increase in revenue had strong margins at 21.1%, while Permanent Placement margins were greater than 90%at 89%, IT Staffing at 19.4%, Media Staffing at 23%, and EOR at 10.4%. EOR margins were compressed by just over 1 pointLower comparative margin can be attributed to 9.1%a loss of an estimated $69 in IT staffing gross profit due to contractual incentives giventhe segment’s decline in business. EOR increasing its share of revenue from 77.7% to certain clients for reaching predetermined revenue levels, and82.5%; at a high levellower-than-average margin of sick leave paid by10.4%, also attributed to the company to its outsourced employees.slight year over year margin contraction. 

YearEOR margins tend to datebe stronger at the beginning of the year before volume incentives kick in for a few of our larger clients thus causing some relational margin compression. Video Production which saw a number of its 2021 the Company’s gross margin percentage improved to 12.7% from 11.9% which can be attributed mainlyclients or work portions moved appropriately over to Media and IT Staffing, margins being > 21% and Permanent Placement which so far have enjoyed margins north of 90%. Absent our Media Staffing year over year Growth and Permanent Placement Revenue, our margins yearhad a negative margin on only $47 in revenue due to date for the period ending September 30, 2021, would be half a point lower at 12.2%.

Overall margin improvement in EOR, Media Staffing and Video Production year over year contributed $82 in gross profit, representing 4.7% of 2020 first half gross profit.cost overrun on a job order.

General and Administrative (“G&A”)

General and administrative expenses for the three months ended September 30, 2021,March 31, 2022, were $866,$1,305, as compared to $1,086$810 in the comparable period in 2020,2021, representing a 20.3% reduction.$495 or 61.1% increase. This increase was alsopredominantly the result of having an estimated $350 in arbitration related costs. Employee salaries and benefits were comparatively up approximately $137 to a reduction of $12 from our prioryear ago as both the sales and client services departments were bolstered with new talent. Sales added two heads resulting in $76 in additional salaries and commissions when comparing first quarter 2022 to 2021. Client Services new hires added $36 in comparative salary in the quarter ending on June 30,March 31, 2022, to the same period in 2021. The $220 decrease in comparative three-month periods can be attributed directly to savings in salary and benefit costs by $109, and outside legal costsThus, those two cost increases make up $487 of $111. Over the nine-month period ending September 30, 2021, management has trimmed $884 or 25.7% of G&A costs, as they represent 14.3% of revenue as opposed to 17% a$495 year ago. The reduction was achieved while increasing the sales portion of G&A in the last 6 months ending September 30, 2021 by $174 as the Company has added additional sales resources.over year variance.

Interest Expense

The Company recognizedincurred $29 in interest expensecharges for financing (factoring) it’s invoices in the amount of $15 duringfirst quarter 2022 compared with $45 in the three months ended September 30, 2021, compared to $30 or 50% during the same prior year period. For the nine-month period ending September 30, 2021, MMG interest costs were $78 compared to $283 for the same nine-month period a year earlier, representingago. MMG has been in a $205, or 72% savings. This cost reduction is directly attributed tobetter cash position hence a significantly reduced reliance on the factoring line that had an outstanding ending Q3 2021 balance of $939 compared to $1,043 at conclusion of second quarter 2020. The reduced reliance on factoring is attributed to the Earned Income Credit (“ERC”) which enabled the Company to reduce its payroll cost obligations by $1,156 during the third quarter.

However, when compared to the second quarter 2021, MMG’s $939 factoring balance was $853 higher. This was largely because of our need to finance $475 to pay Vivos Group outside debt. The other factor was that the $86 balance at the end of June 2021 was exceedingly low as our average year to date balance had been around $530.rely on factoring.

Other Income (Expense)

Spurred by ERC other income for the three-month period ending September 30, 2021, which totaled $1,813 resultingMMG made a charitable contribution of $3 in the Company experiencing thirdfirst quarter pre-tax net income of $1,816 compared to a $429 pre-tax net loss a year earlier.

Over the nine-month period ending September 30, 2021, the PPP forgiveness of $5,216 and the ERC’s totaling $4,674 enabled the Company to experience pre-tax net earnings of $9,725 compared to a loss of $1,221 in the comparable period of the prior year.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 factoring, and client accounts receivable receipts. Since receipts from client payments are on average 70 days behind payments to field talent, working capital requirements can be periodically challenged. We have a Factoring Facility with TBC,Triumph, whereas TBCTriumph 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%. As a result of the impact of the COVID-19 pandemic, our clients may be more likely to be delinquent in their payments. However, to date, we have not seen any adverse change in our collections, with ourOur Days Outstanding (DSO) for first ninethe trailing 12 months of 2021ending March 31, 2022, is at 5961 comparable to the 6160 DSO for periodthe trailing twelve months ending DecemberMarch 31, 2020. By June 2020 our DSO increased to 67 from 60 in2021.

In 2019 as several of our large clients began demanding 60-to-90-day terms. Delays in receipt of purchase orders also had an adverse impact on DSO. It appearsThis seems to affect MMG in the pendulum overfirst quarter as for the past 3 quarters has swung favorably as only 3.5% of $4,405months ending March 31, 2022, our DSO improved 54 to 53 compared to the same 3-month period in Accounts Receivable (“A/R”) was > 31 days past invoice due dates, with only 1% > 60.2021.

When looking at A/R aging in relation to invoicedue date, as of September 30, 2021, 56.3%March 31, 2022, 88.2% of our $4,405$4,660 in total trade A/R was < 31 days aged, compared to 49%97.6% a year ago. This has much to do with larger clients delaying payments and up to 30 days delay on receiving purchase orders after the invoice has been prepared. MMG management is working on ways to speed back up the cash conversion process outside of financing.

The Company has an additional $3,221 in other receivables associated with our ERC eligibility for the first three quarters of 2021. Conversely ourOur Federal and state tax liability has now increased to $1,030.$688.

Our primary sources of liquidity are cash generated from operations via accounts receivable and borrowings under our Factoring Facility with Triumph 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 can be adversely impacted since Triumph does not provide credit if an account obligor pays more than 120 days after the invoice date.

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.

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 we employ factoring.

Vivos Debtors as of September 30, 2021,March 31, 2022, had notes receivable totaling $4,949$5,039 including default on a $3,000 promissory note and on a $750 tax obligation in December 2019. After numerous failed collection attempts, on February 17, 2020, the Company initiated an action in the Circuit Court of Montgomery County Maryland against NaveenDr. Doki and the Vivos Holdings for non-payment.

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 May 5, 2020, MMG received a $5,216 loan through the Paycheck Protection Program (the “PPP”) with a term of two (2) years and an interest rate of 1% per annum. The PPP provided that the Company be eligible for forgiveness if the loan proceeds were used for payroll and certain other specified operating expenses while maintaining specified headcount requirements. On June 10, 2021, the Company was informed by the SBA that it had met the requirements and that both the $5,216 and of accrued interest totaling $57 were forgiven

The fundsBecause our first three-quarter revenues in 2021 were 80% or less than they were in 2019, the Company was eligible for the Employee Retention Credit. Consequently, MMG received $155 in direct payroll credits from the IRS via its payroll provider Paycom in the late 2^nd quarter and $1,086 in the third quarter. MMG returned $842 to the IRS for payroll credits received in the 4^th quarter once the program ended retroactively in mid-November 2021.This payment was made to the IRS through Paycom, the Company’s payroll provider in January 2022.

Overall, these programs bolstered our working capital and enabled us to bring back employees and continue to serve our clients even though their requirements had lessened.clients.

As of September 30, 2021,March 31, 2022, our working capital was $9,417,$8,815, compared to $5,970$5,971 at the end of December 2020, $7,991 as of September 30, 2020, and $566 as of March 30, 2020, approximately one month before the PPP funds were received. The PPP funds enabled the Company to build A/R reserves since PPP funds were employed to pay salaries of both outsourced and G&A employees during the covered 24-week period between May and October 2020.2021. Our adjusted working capital at the end of September 2021,March 2022, excluding the notes receivable related to the Vivos Debtors totaling $4,949, was $4,865.totals $3,776 compared to 1,663 a year earlier.

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 President 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 President 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 President 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.