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 Shareholders 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, 2019 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.
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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, 2019 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 condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these unaudited
condensed 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, 2019.
Management's Discussion included in the Form 10-K for the year ended December
31, 2019 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 2019 operations; thus
the reader of this report should read Management's Discussion included in Form
10-K for the year ended December 31, 2019.
RESULTS OF OPERATIONS
Revenues
Revenues for the three months ended March 31, 2020 was $8,801 which was $500
greater than for the same period in 2019 which was $8,301. IQS revenue was the
main driver of the increase as the IT staffing division delivered $798 in
revenue.
Staffing revenue improved by 185% as the IQS IT division accounted for $798 of
growth. The IQS IT staffing division improved $64 or 8% to a year ago when it
was a standalone company. Media staffing grew as well by 9% to $495 as our
client base expanded, and several cyclical projects had longer durations than a
year ago.
EOR 1st quarter comparative revenues fell by $270 (4%) from $7,419 a year ago to
$7,149 on March 31, 2020.
Cost of Revenue / Gross Profit
Gross Profit was $1,032 representing 12% of revenues, which was $195 greater
than the gross profit in the first quarter of 2019. IQS contribution to gross
profit was at $234 which represents 23% of the Company's gross profit.
IQS's margin at approximately 29% led the improvement in overall gross margin
which in 2019 was approximately 10.5% before the acquisition of IQS. IQS margin
increased from 28% average in 2019 to 29%, can be attributed to Maslow's benefit
structure that was less costly.
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General and Administrative
General and administrative expenses for the three months ended March 31, 2020
were $1,091 as compared to $654 in the comparable period in 2019. The increase
in comparative three-month periods is due to costs associated with being a
public company and higher legal costs which together totaled approximately $452
of the difference. $131 of the remaining $202 difference was in IQS
administrative salaries and other operating costs such as rent.
Interest Expense
The Company recognized interest expense in the amount of $138 during the three
months ended March 31, 2020, compared to $84 during the prior year period. The
increase is directly attributed to $850 in convertible notes being carried and
approximately $10 in additional interest Maslow had to incur for IQS factoring
in the first quarter. It was noted in our 10-K that Vivos' sale of IQS to
Company included an undisclosed lien which Vivos refused to settle after it
became known. Consequently, the Company had to continue to use Vivos' higher
cost factoring facility at approximately 16% as opposed to Maslow's at an
approximate 1st quarter APR of 7.65%.
Net Income Loss
The Company incurred a net loss in first quarter of $237 compared to net profit
in 2019 of $77. Corporate costs much of which are public company related
totaling $477, more than accounts for the variance.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash generated from operations via
borrowings under our Factoring Facility with Triumph and receivables 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, and most other factoring institutions no longer provide credit after an
account obligor pays 30 or more days from their contractual terms.
Our primary use 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.
The Company expected to have promissory note for $3,000 repaid by Naveen Doki at
the end of 2019. In the first quarter the Company continued to pursue repayment
as the impact of not having that cash returned to the Company coupled
approximately $900 more a year in costs associated with being a public company
and the inability to tap the capital markets due to not having any available
shares, resulted in cash challenges.
Then in March 2020, a national, lockdown began to unfold due to the COVID-19
pandemic. This resulted in a significant loss of business starting the last week
of March, resulting in a reduction of billing by approximately 35%.
The Company responded swiftly on March 20, 2020 by taking steps to reduce its
expenses and improve the Company's liquidity, including the furlough of six (6)
general and administrative personnel and instituting pay-cuts across the board
with executives taking a larger cut which commenced. Executives, including the
Company's CEO and CFO have had their salaries reduced by fifteen percent.
On May 5, 2020, MMG received the PPP Loan. . The Paycheck Protection Flexibility
Act, was passed by Congress and signed by the President June 3rd, 2020. By
utilizing these funds for their intended purpose of payroll, with forgiveness
potential over first 24 weeks, the Company has been able to free up cash to pay
other expenses and obligations The Company intends to use the extended 24-week
period to restore our workforce levels and wages to pre-pandemic levels to the
extent we can in order to maximize achievement of a high percentage of
forgiveness.
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Net cash provided by operating activities during the three months ended March
31, 2020 was $972 compared to $1,199 in the comparable period of 2019. The
change was attributable to an increase in legal and costs associated with being
a public company during the three months ended March 31, 2020.
In February 2020, Maslow took out a $250 6-month term loan from Triumph at 10%
APR, in order to meet its cash obligations. In early March the loan principal
was increased by $75 with the remaining term extended 26 weeks to September. On
April 7, 2020t, in the face of the COVID 19 lockdown, Triumph offered a 2-month
payment holiday and to extend the note payment, which was ultimately agreed to
be extended until February 2021.
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