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 June 30, 2021, was $5,074 which was $123
lower than for the same period in 2020 which was $5,197. IQS the Company's IT
staffing division had a revenue decline of $542 or 80% from the same period a
year ago which offset the improvement in revenue by EOR $3,981 for quarter, up
$174 or 4.6% and Media Staffing $676 up $210 or 45%, and $30 in revenue from a
Permanent Placement
IT staffing revenues do not include an IT permanent placement for $30 in the
quarter and expect an increase in this activity as certain new clients are
asking us for this service. The Company will be treating Permanent Placement
revenue as a separate business segment as reflected above in Note 9.
For the six months ended June 30, revenue totaled $10,868 which was $3,130 less
than a year ago. 42% of the revenues for the 6-month period totaling $13,998 a
year ago, were earned prior to any impact by Covid 19. Business segments with
the largest declines in the six-month period ending June 30, 2021, when compared
to a year earlier, were EOR at $2.481 or 22.6% and IQS which derived $1,058
less, a 72% 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 $595 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 $201. In order to offset these
lost revenues, the Company will focus business development resources on growing
the IT staffing business in the second half of 2021.
Media Staffing however has increased its 6-month revenue to 1,286 from $965, a
$321 or 33% improvement. This is due to the acquisition of 6 new clients which
added $231 and an increased demand for this service ($90) by our existing
clients, driven by our expertise in delivering top rated media talent to our
customers.
Video Production's 6-month revenue performance also saw an improvement to the
same period a year ago by $80, totaling $661.
Cost of Revenue / Gross Profit
Gross Profit for the three-month period ending June 30, 2021, was $718
representing 14.2% of revenues, which was $28 below the gross profit of $723 in
the first quarter of 2021 and $5 below the gross profit for the same period in
2020.
Although the revenue from Q1 declined by 2.4% from Q1 2020, lower cost of
revenue resulted in a gross margin decline of just over a half a point (.6%).
Thus, gross profit at $718 was only $5 less than a year ago at $723. Quarterly
Margin improvement from 13.9% to 14.2% was driven by Permanent Placement revenue
of $30 with gross margin at 96.4%; resulting in overall gross margin improvement
by half a point from 13.7 to 14.2%. Otherwise, quarterly comparative gross
margin would have been slightly lower by 20 basis points than it was a year ago.
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Year to date 2021, the Company's gross margin percentage improved to 13.5% from
12.5% which can be attributed to EOR margin reaching 10% on gross profit of $856
in 2021, compared to 9.3% on $1,018 in same period in 2020.
EOR and Media Staffing margin boosts (.07% and .06% respectively) coupled with
Permanent Placement margin of $29 (96.4%) offset the steep decline in IQS higher
margin gross profit which saw a year over year decline by $334 or 73% from $458
to $124.
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.
General and Administrative ("G&A")
General and administrative expenses for the three months ended June 30, 2021,
were $878, as compared to $1,240 in the comparable period in 2020, representing
a 28.6% reduction. The $362 decrease in comparative three-month periods is due
to reductions in salary and benefit costs by $180, outside legal costs $79, and
rent costs by $66. Over the 6-month period ending June 30, 2021, management has
trimmed $657 or 28% of G&A costs, as they represented 15.6% of revenue as
opposed to 16.8% a year ago. The reduction was achieved while increasing the
costs of sales G&A year over year for the quarter ending June 30, 2021, by $74
or 45%.
Interest Expense
The Company recognized interest expense in the amount of $18 during the three
months ended June 30, 2021, compared to $114 during the prior year period. The
$96 (84.5%) decrease is directly attributed to a significantly reduced reliance
on the factoring line that had an outstanding ending Q2 2021 balance of $86
compared to $1,043 at conclusion of second quarter 2020.
Other Income (Expense)
Spurred by the PPP forgiveness principal of $5,216, a reversal on PPP interest
$59, and ERC totaling $2,767, other income totaled $8,042 resulting in the
Company experiencing second quarter net earnings of $7,942 compared to a $324
net loss a year earlier and net earnings of $7,240 during the six months ended
June 30, 2021, compared to a loss of $561 in the comparable period of the prior
year.
The ERC consisted of a second quarter request for a first quarter refund of
$1,440. Subsequently the Company received $153 in ERC credits against the last
two payrolls in June 2021 and has requested a refund of another $1,174 covering
the remainder of the second quarter 2021. The Company qualified for the ERC in
2021 as its quarterly revenue was < 80% of its 2019 revenue for the same
periods.
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) for first half of the year at 63 comparable to the 68 DSO for
period ending December 31, 2020. In 2020 our DSO increased in from 60 in 2019 to
68 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. However, as of
June 30, 2021, only 2.4% of $3,303 in Accounts Receivable ("A/R") was > 31 days
past invoice due dates, with only .2% > 60.
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When looking at A/R aging in relation to invoice date, as of June 30, 2021, 61%
of our $3,303 in total A/R was < 31 days, compared to 64% in the quarter ending
March 31, 2021.
The Company has an additional $2,615 in other receivables associated with our
ERC eligibility for first and second quarters 2021.
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 June 30, 2021, had notes receivable totaling $4,387
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 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, through May 2021, totaling $57 were forgiven
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 June 30, 2021, our working capital was $7,991, compared to $5,970 at the
end of December 2020, and $6,152 the quarter ending June 30, 2020, approximately
a 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. Working capital at the end of June 2021, excluding the notes
receivable of $4,387, was $3,604.
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