RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2024

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

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.”

The table below is a summary of Vivos Group related party notes receivable which, as of September 30, 2024, totals $5,827.

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		292			69			65		426
Repayments		(9	)		(91	)		-		(100	)
Balance on September 30, 2024	$	4,048		$	884		$	895	$	5,827

RELIABILITY INCORPORATED AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2024

(amounts in thousands, except per share data)

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 managements knowledge in 2017. The Company was entitled to cash in the amount of $91 as a result of the bankruptcy proceedings and sale of the building, which we received on August 31, 2024. The $91 credit was applied to Vivos debt to MMG, thus lowering the balance, as evidenced in table above on “Repayments” line.

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.

On October 17, 2024, the entire warrant value associated with ten 2019 convertible promissory notes expired. (See also Subsequent Events in Note 10).

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 expired on October 17, 2024.