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 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 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, 2020.
Management's Discussion included in the Form 10-K for the year ended December
31, 2020 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 2021 operations; thus,
the reader of this report should read Management's Discussion included in Form
10-K for the year ended December 31, 2020.
RESULTS OF OPERATIONS
Revenues
Revenues for the three months ended March 31, 2021 was $5,794 which was $3,007
lower than for the same period in 2020 which was $8,801. EOR revenues declined
37.1% or $2,655, and staffing revenue by 31.5% or $406 as demand for services
was down from a year ago which before the mid-March 2020 governmental shutdown
caused by the COVID-19 pandemic, was buoyed by election and sporting event
client activities. AT&T's DirecTV unit cancellation of several Sirius-XM shows
accounted for an estimated $1,000 revenue decline which represents approximately
33% of our overall comparative revenue decline and 37% of the EOR comparative Q1
decline.
Staffing revenue was adversely impacted by our IQS IT division which saw a
dramatic decline of $516 or 65.3% from $790 in Q1 2020, to $274 in the Q1 2021,
as 2 clients ceased employing our IT solutions almost altogether ($402 revenue
decline) and one of our largest clients converted 4 full-time equivalents
("FTE") to permanent roles over the course of 12 months after April 1, 2020,
leading to a $84 top line comparative Q1 reduction. Conversely, Media staffing
grew 22% to $610 as head count increased by a commensurate percentage of 25% by
end of the quarter.
Cost of Revenue / Gross Profit
Gross Profit was $747 representing 12.9% of revenues, which was $285 below the
gross profit of $1,032 in the first quarter of 2020. Although revenues from Q1
declined by 34.2% from Q1 2020, gross margins only declined by 27.7%. This was a
result of Q1 profit margin improved from 11.7% in Q1 2020 to 13% in Q1 2021.
Margin improvement can be attributed to product mix being more titled to higher
margin staffing and Video Production, which combined was 22.3% in Q1 2021 versus
18.5% in Q1 2020.
General and Administrative ("G&A")
General and administrative expenses for the three months ended March 31, 2021
were $810, as compared to $1,091 in the comparable period in 2020. The
$281decrease in comparative three-month periods is due to $101 in salary and
benefit cost reductions, outside legal costs declined by $90 and accounting fees
by $19. Given the adverse effect on revenues caused by COVID-19, and the need to
add new clients, management restructured the organization accordingly, which
improved sales resources, but lowered overhead costs by 15% to a year ago.
Interest Expense
The Company recognized interest expense in the amount of $45 during the three
months ended March 31, 2021, compared to $138 during the prior year period. The
$93 decrease is directly attributed to a significant decreased reliance on the
factoring line that had an outstanding average Q1 2020 balance of $4,711
compared to $2,164 in 1Q 2021. This resulted in a savings of approximately $50
and paying off the convertible note which carried approximately $26 in interest
in 2020. The Triumph Loan for $250 which was satisfied in February had $11 more
in costs in 2020.
Net Loss
The Company incurred a lower net loss in first quarter of 2021 at $28 compared
to a year earlier when it was $237 as the reduced G&A and interest charges
(includes VIE related interest), and income tax coupled with $75 in earned
interest, totaled a $489 improvement from a year ago, compared to a reduction of
$285 netting 204 in net profit improvement in Q1 2021compared to March 31, 2020.
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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
Triumph Business Capital ("TBC"). TBC 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 our Days
Outstanding (DSO) improving to 63 days compared to 73 on December 31, 2020. Our
DSO increased in 2020 because several of our large clients now require
60-to-90-day terms. As of March 31, 23% of our invoicing was > 60 days aged.
As of March 31, 2021, 64% of our $3,964 in total A/R was < 31 days, 34% 1 to 30
days past due, 5% between 31 and 60 days past due and 2% ($66) greater than 60
days. As of March 31, 2021, having 7% of our A/R > 31 days is an improvement
over December 31, 2020, where 11% of our A/R was aged >31 days.
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 no longer provides 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 in the past we have employed factoring.
Vivos Debtors as of March 31, 2021, had notes receivable totaling $4, 308
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 Naveen Doki and the Vivos Holdings for nonpayment.
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 provides that the Company may apply for forgiveness of this loan
if the loan proceeds were used for payroll and certain other specified operating
expenses while maintaining specified headcount requirements. The accrued
interest on the PPP loan as of December 31, 2020 was $34.
On June 5, 2020, The Paycheck Protection Program Flexibility Act (the "PPPF
Act") went into effect providing more flexibility to participants in the PPP
which included extending the time to begin repayment of the PPP loan until the
amount of forgiveness, if any, is determined, which could be as late as December
31, 2020. The Company may apply for forgiveness earlier if they determine that
doing so will maximize the amount of loan forgiveness.
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On December 22, 2020, the United States Congress passed an omnibus spending bill
(the December relief bill) that included significant revisions and additions to
the PPP established by the Coronavirus Aid, Relief and Economic Security Act
("CARES Act"), and previously amended by the Paycheck Protection Program
Flexibility Act ("PPP Flexibility Act"). President Trump signed the bill on
December 27, 2020. The December relief bill permits expenses paid with PPP loan
funds to be deductible at the Federal level.
On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues ?Act (the "PPP2 Act") contained in the Consolidated Appropriations
Act, 2021 ("2021 Appropriations Act") ?was enacted. The PPP2 Act and 2021
Appropriations Act included several changes to the forgiveness ?deadline process
and deadlines allowing PPP borrowers up to 10 months to apply for loan
forgiveness after the covered period ends.
The Company utilized the PPP funds for their intended purposes, in this case for
payroll only following guidelines for wage earners >$100.
The funds bolstered our working capital and enabled us to bring back employees
and continue to serve our clients even though their requirements had lessened.
As of March 31, 2021, our working capital was $5,938, compared to $5,970 at the
end of December 2020, and $566 a year ago as 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.
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