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, 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, 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.
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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, 2021.
Management's Discussion included in the Form 10-K for the year ended December
31, 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 2022 operations; thus,
the reader of this report should read Management's Discussion included in Form
10-K for the year ended December 31, 2021.
RESULTS OF OPERATIONS
Revenues
Revenues for the three months ended June 30, 2022, was $6,481, which was $1,407
or 27.7% greater than for the same period in 2021 with second quarter revenue at
$5,074. EOR grew by $1,534 or 38.5% to $5,515, which represented 85.1% of second
quarter revenue.
Staffing grew $86 to $898 in the second quarter of 2022, but approximately $106
of this total was based on two reassignments of specific US government projects
from Video Production to Media Staffing.
Media Staffing, a subset of Staffing, grew beyond benefitting for $106 in
reclassed Video Production project revenue from a year ago, with second
quarterly revenues of $824 compared to $676 a year ago, an increase of $148. The
reclass was merely taking recurring non project revenue previously classified as
Video Production and reassigning it appropriately to Media Staffing. The impact
in 2022 was $106 in the second quarter. IT Staffing, the other subset, declined
comparatively in the second quarter 2022 to 2021 by $62, garnering $74 in 2022.
Video Production would have had a decline in revenue outside the $106 deemed not
be staffing work, had remained, as that segment produced $68 in revenue compared
to $250 in the second quarter 2021.
Permanent Placement failed to post revenue in the quarter ending June 30, 2022.
For the six months ended June 30, 2022, revenue totaled $12,264 compared to
$10,868 in the same period a year ago, resulting in $1,396 in incremental
revenue comparably.
EOR revenues produced an even larger comparative gain in the first half of 2022
compared to 2021, with $10,288 for the six months ended June 30, 2022, compared
to $8,478 a year ago. This is an increase of $1,810 or 21.3%, which represented
83.9% of the Company's total year to date (YTD) revenue through June 30.
Staffing increased as well when comparing six-month performance ending June 30,
2022, to same period in 2021, by $126 to a total of $1,822. This represented a
7.4% increase over 2021's Staffing Revenue of $1,696 through the six months
ending June 30, 2021.
Media Staffing grew $397 to $1,683 with $206 attributable to the reassignment of
two client projects previously credited to Video Production.
Video Production revenue compared unfavorably to the same period in 2021, with
revenues of $115 compared to $661 in 2021, a $546 drop. If adjusted for the
reclassification of work credited to it in 2021, Video Production would have
dropped by $340.
Cost of Revenue / Gross Profit
Gross profit for the three-month period ending June 30, 2022, was $887
representing 13.7% of revenues, which is a $169 improvement over the $718 in
gross profit MMG earned in 2021's second quarter when the gross margin reached
14.1%.
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The quarter over quarter gross margin ("GM") percentage drop can be partially
attributed to the strength of the aforementioned EOR revenue increase of $1,534,
which resulted in EOR dominating the four business segments by accounting for
85.1% of the business versus 78.5% in the second quarter 2021; as EOR business
GM percentage was 11.7% to the rest which totaled 22.7%, the over quarterly
average slipped from a year ago.
However, EOR's 11.7%, margin was strong compared with 10.4% in the first quarter
2022, 10.1% in the second quarter a year ago and a 9.8% average for all of 2021.
This improvement can be attributed to some pricing changes negotiated with
several key clients, and the client mix being favorable as clients with slightly
higher margins contributed more heavily to the quarter. This is not expected to
be the case throughout 2022.
MMG's Staffing gross profit grew modestly by $6 to $191, as volume had more to
do with the growth than gross margin percentage as Staffing margins declined by
80 basis points to 20.7%. IT Staffing dropped approximately 1% in gross margin
percentage to 27.8%.
Year to date 2022, the Company's gross profit improved by $153 or 10.5% to
$1,616 compared to 2021.
Gross margin percentage fell slightly to 13.2% from 13.5%.
EOR experienced a margin boost year to date to 11.1% compared to 10.1% through
June 30, 2021. Video Production's YTD GM % also improved to 24.9% from 20.9% a
year ago. Media Staffing GM % has slipped to 21.9% versus 24.5% in the six
months ended June 30, 2021. Gross Profit in Media Staffing for the nine months
ending June 30, however rose to $368 from $314 as volumes increased.
General and Administrative ("G&A")
General and administrative ("G&A") expenses for the three months ended June 30,
2022, were $1,097, as compared to $878 in the comparable period in 2021,
representing a $220 or 25.1% increase. This increase was predominantly the
result of having an estimated $107 in arbitration related costs, employee
salaries and benefits ratcheting up by $64 or 9.4% from the second quarter 2021,
and contracted labor and recruiting costs increasing by $33 comparatively from a
year ago.
For the six months ending June 30, 2022, G&A was $2,402 compared with $1,688 a
year ago, an increase of $714 or 29.7%. However, the legal and consulting costs
associated with our arbitration (See Note 1) represented $506 in totality, a
$419 increase in like costs associated with the Vivos Matter from a year ago.
MMG salaries and benefits increased $201 with sales and client services
department non incentive based compensation increasing $127, as we increased our
investment in these two vital groups. The other areas of spend increase were
commissions to drive sales and recruiting totaling $33; bonus accrued at $72 as
we move to tie more compensation to performance-based measures; commercial legal
$19; recruiting software $15; and travel $11.
Interest Expense
The Company incurred $66 in interest charges for financing (factoring) its
invoices in the first six months of 2022 compared with $63 in the same period a
year ago, In the second quarter MMG incurred $36 in interest changes compared to
$18 in the same period a year ago as MMG increased its average position under
finance from $1.3M a year ago to $2.5M in the second quarter 2022.
Other Income (Expense)
MMG benefitted from $1 in corporate credit card rebate in the second quarter
2022. For the six months ended June 3, 2021, MMG had $0 in other income compared
to a year ago when MMG earned $8,042 in other income courtesy of $5,273 in the
PPP Forgiveness which included the recovery of accrued interest, and $2,769 In
Employee Retention Credits (ERC).
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LIQUIDITY AND CAPITAL RESOURCES
Our working capital requirements are driven primarily 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, whereas Triumph advances 93% of our eligible receivables at an advance
rate of 15 basis points, an interest rate of prime plus 2%., and our prime floor
rate at 4%. Our Days Outstanding (DSO) for the trailing 12 months ending June
30, 2022, is at 64 comparable to 62 DSO for the trailing twelve months ending
June 30, 2021.
In 2021, a few of our large clients began demanding 90-day terms. Delays in
receipt of purchase orders also has had an adverse impact on our DSO since 2019.
Despite these challenges, our DSO in the second quarter ending June 30, 2022,
improved to 65 from 80 in the first three months of 2022.
When looking at A/R aging in relation to due date, as of June 30, 2022, 77.4% or
$3,620 of our $4,668 in total trade receivables were < 31 days aged, compared to
97.6% a year ago. This has much to do with extended payment terms to our larger
clients as well as delays of up to 30 days 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.
Our Federal and state tax liability has a balance of $92 at the end of the
second quarter 2022, mainly because we deposited $725 for our 2021 expected tax
liability.
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 experience an
adverse cash flow impact 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 officers' 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 June 30, 2022, had notes receivable totaling $5,094
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 Dr. 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.
Because 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 2nd quarter and $1,086 in the third quarter.
MMG returned $842 to the IRS for payroll credits received in the 4th 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.
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Overall, these programs bolstered our working capital and enabled us to bring
back employees and continue to serve our clients.
As of June 30, 2022, our working capital was $8,608 compared to $9,361 on
December 31, 2021, and compared to $9,361 on December 31, 2021. Our adjusted
working capital at the end of June 2022, excluding the notes receivable related
to the Vivos Debtors totals $3,514 compared to $3,605 a year earlier.
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