Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited condensed 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: our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses; 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, 2024, 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, 2024, 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.

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, 2023.

Management's Discussion included in the Form 10-K for the year ended December 31, 2024, 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 2025 operations; thus, the reader of this report should read Management's Discussion included in Form 10-K for the year ended December 31, 2024.

RESULTS OF OPERATIONS

Revenues

Revenues for the three months ended June 30, 2025 were $4,718, a decrease of $1,323 or 21.9% compared to $6,041 in the second quarter of 2024.

The decline was primarily attributable to our Employer of Record (EOR) segment, which generated $3,573 in revenue during the quarter, compared to $5,243 in the prior-year period, a decrease of $1,670, which exceeded the overall revenue shortfall by another 10%.

Two of our top three revenue-producing clients contributed a combined $1,069 reduction in EOR revenue, representing approximately 65.4% of the total EOR decline. One of these clients had already begun reducing its media expenditure due to the off-cycle election year and was further impacted by federal agency policy changes initiated by the Department of Government Efficiency (DOGE), which led to additional cutbacks in services.

Conversely, Staffing revenue grew for the second consecutive quarter, increasing $385 (54.0%) to $1,098 in Q2 2025 compared to $713 in Q2 2024. This also reflects an 18% improvement over Q1 2025, where staffing revenue was $932. The increase was primarily driven by two clients:

	●	The start of a newly won bid from a federal agency initiating a managed services agreement in late July 2024, generating $227 in Q2 2025 revenue.
	●	A long-standing private sector client that transitioned a portion of its EOR population to managed staffing services, contributing $220 to Q2 Staffing revenue.
	●	Staffing mix of remaining clients being higher than in 2024.

Our Direct Hire business generated $13 in revenue for the quarter, a decrease of $14 compared to the same period in 2024. Video Production revenue totaled $34, a decrease of $24 (41%) from $58 in the prior-year quarter.

For the six-month period ended June 30, 2025, revenues were $9,465, compared to $11,336 in the same period in 2024, a decline of $1,871 (16.5%). Approximately $886 (47.4%) of the decrease was attributable to a large media client that significantly reduced its spend due to 2025 being a non-election year and an unexpected cut in government-related funding. Another client, which contributed $501 in the first half of 2024, merged its media department internally and discontinued EOR support.

Additionally, our top two clients reduced spending by a combined $373 in the first half of 2025. However, both have indicated that they expect to restore spending levels in the second half of the year.

A year ago, we ceased supporting one client engagement, and a portion of another, due to elevated risk exposure associated with their activities. This action resulted in a loss of $489 in revenue over the six-month period, but it reflects our commitment to maintaining prudent operational oversight.

Despite the decline in EOR revenue, which fell by $2,487 year-over-year in the first half of 2025, our Staffing segment improved by $650, increasing from $1,380 to $2,030 (47.1%). This growth was largely driven by the previously mentioned federal agency client, which accounted for 71% of the year-over-year increase and a restructured contract with a major broadcasting client, transitioning it from EOR to a Managed Staffing Services model beginning in April.

Both Video Production and Direct Hire experienced modest declines over the six-month period, falling by a combined $34 (24.1%). In response, we implemented cost restructuring initiatives in Q2 aimed at reducing overhead within the Video Production business unit.

Cost of Revenue / Gross Profit

Three Months Ended June 30, 2025 vs. 2024

Gross profit for the three months ended June 30, 2025 was $713, a $91 or 11.3% decrease compared to $804 in the same period in 2024. Despite the decline in absolute gross profit, the consolidated gross margin improved to 15.1%, up from 13.3% in the prior year period. The margin expansion reflects a continued mix shift toward higher-margin services and targeted cost containment efforts.

Although EOR (Employer of Record) gross profit declined $186, gross margin improved from 12.0% to 12.4% in the second quarter 2024, demonstrating a larger percentage of the EOR business decline coming from our 1099 supplier processing as opposed to our W2 employee assignments.

With Staffing revenue growing 54.0% year over year to $1,098, gross profit increased at a stronger clip by $109 from $143 to $252 or 76.2%. This is represented by Staffing's GM landing on 22.9%, compared to 20.0% in the prior year. The level of the increase in the Staffing margins

The shift in lower margin EOR business to higher margin Staffing coupled with Staffing margins moving up from 270 basis points resulted in $109 increase in GP to what it otherwise would have landed had to lost revenue been equal. This was because Staffing gross margin for the quarter was favorably impacted by approximately 362 basis points, in reaching 22.9% due to lower-than-anticipated direct delivery costs relative to a consistent revenue base for a single client, a paradigm which will likely not occur in the third and fourth quarters.

Video Production saw flat gross profit of $8, but margin improved to 23.9%, compared to 14.4% in Q2 2024 which was skewed by what was then a discretionary credit.

Direct Hire posted $13 in revenue, with gross profit of $12, a gross margin of 90.0%, consistent with prior-year trends.

The overall improvement in gross margin was driven largely by the stronger contribution from Staffing and more favorable margin performance across all segments.

Six Months Ended June 30, 2025 vs. 2024

Gross profit for the six-month period ended June 30, 2025 was $1,355, a decrease of $157, or 10.4%, compared to $1,512 in the prior-year period. Despite the reduction of gross profit, consolidated gross margin improved to 14.3%, compared to 13.3% in the six months ended June 30, 2024. This improvement reflects a favorable revenue mix shift, notably the reduction of lower-margin Employer of Record ("EOR") revenue and higher profitability in our Staffing segment.

The shift toward higher-margin Staffing revenue, combined with an improvement in Staffing gross margin to 20.6% from 19.2%, contributed approximately $100 in additional gross profit. Absent this margin expansion and revenue mix shift, had the margin on the revenue loss been equal, gross profit would be down another $100.

EOR gross profit declined $293, or 24.7%, to $894 from $1,187 in the prior year period. EOR gross margin increased slightly to 12.2%, compared to 12.1% a year ago. The year-over-year decline in EOR revenue was driven primarily by reduced spending from our three largest EOR clients in 2024, which collectively accounted for $111, or 38%, of the reduction. Additionally, as disclosed elsewhere in this report, two clients with elevated risk profiles, lack of revenue and gross profit accounted for $100, or 34%, of the total EOR revenue decline.

Conversely, the Staffing segment benefitted from a $650 increase in revenue and a 140-basis point expansion in gross margin to 20.6%, compared to 19.2% in the same period of 2024. This improvement was partly attributable to a short-term fixed-fee client arrangement that temporarily lowered our delivery costs. The resulting gross profit uplift is estimated at approximately $540, with the associated margin impact accounting for 130 basis points of the segment's margin expansion. Absent this temporary benefit, Staffing gross margin would have been approximately 19.3%.

Video Production revenue was $84, generating gross profit of $21, a notable increase from $11 in the prior year period. Gross margin improved to 25.0%, more than doubling year-over-year, largely due to a one-time credit adjustment extended to a top-tier client as a goodwill gesture.

Direct Hire revenue declined by $28 to $23, while gross profit also declined $28 to $21. Despite the revenue reduction, gross margin remained robust at 91.3%, down slightly from 95.4% in the comparable period last year.

Overall margin expansion during the six-month period was driven by the decline in lower-margin EOR revenue and higher-margin growth in the Staffing segment. It is estimated that approximately $46 in additional gross profit and 50 basis points in total gross margin were attributable to the aforementioned temporary cost reductions in Staffing to a single client. Excluding these effects, year-to-date gross margin would likely have been closer to 13.8%. Nonetheless, gross profit continues to be constrained by ongoing revenue declines in the EOR business, which remains the largest contributor to consolidated revenue.

General and Administrative ("G&A")

General and administrative ("G&A") expenses for the three months ended June 30, 2025 were $966, a decrease of $20, or 2.0%, compared to $986 in the same period in 2024. This decline was primarily attributable to lower compensation-related expenses resulting from a slight reduction in average headcount, which declined from 22.8 to 22.1 year over year. The corresponding $61, or 9.3%, decrease in fully loaded salaries, including payroll taxes and benefits, reflected several contributing factors: (i) a $39 reduction related to the suspension of the Company's 2025 bonus program, (ii) a $12 decrease in health and welfare costs, and (iii) a $32 favorable variance in accrued leave expense.

Non-salary G&A expenses increased by $41 to $307, driven by a $26 rise in human resources-related legal fees, a reclassification of Business License & Taxes from income tax expense to SG&A, and a $5 increase in software expenses. Non-salary costs increased by $41 to $307, primarily due to a $26 increase in HR-related legal fees, a reclassification of Business License & Taxes from income tax expense to SG&A, and a $5 increase in software-related costs.

On December 29, 2023, the Maryland Circuit Court certified an arbitration award as a judgment. As a result, expenses related to the award are now focused on collection and recovery. Beginning in 2024, the Company reclassified legal expenses associated with non-core operational matters, including those related to the Receiver, from SG&A to Other Expense.

For the six-month period ended June 30, 2025, G&A expenses totaled $1,989, an increase of $55, or 2.9%, compared to $1,933 in the same period in 2024. While fully loaded salaries declined by $25 due to the aforementioned headcount and bonus reductions, non-salary expenses increased by $80. This increase was primarily driven by (i) $26 in higher legal fees related to a human resources matter, and (ii) a $26 increase in payroll processing costs, attributable to the absence of a first-quarter ADP fee waiver received in the prior year. Additional increases included $19 in Business License & Taxes, due to reclassification, $10 in software expenses related to platform improvements, and $9 in depreciation expense. These increases were partially offset by reductions in staff event costs, business insurance, and consulting expenses, each of which declined by approximately $6.

Interest Expense

The Company incurred $36 in interest expense during the three months ended June 30, 2025, compared to $20 for the same period in 2024. For the six months ended June 30, 2025, total interest expense was $88, up from $35 in the prior-year period. These amounts reflect charges related to financing, invoice factoring, and the use of an advance rate (BIP) program against client receivables. The year-over-year increase in interest expense is primarily attributable to the need to finance a greater portion of bi-weekly payroll obligations through external sources. While the volume of factored invoices rose, the Company's average cost of capital declined during 2025, due to a lower prime rate environment and the favorable impact of structured invoice sales programs.

Other Income (Expense)

These non-operational one time or short-term costs, in the second quarter totaled $44 consisting solely of in Receiver costs versus $136 which included restructuring-based employee matters and other Vivos related legal charges, in the same period 2024. A year ago, there were Receiver and arbitration award related costs being reclassed from SG&A legal. In the fourth quarter of 2024, we closed out the employee and the SWC matters.

For the six months ended June 30, 2025, Other Expense was $71 consisting exclusively of receivership activities, compared to $229 which consisted of SWC, and employee severance and related legal fees.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital requirements are driven primarily by payroll for Employer of Record (EOR) field talent, general and administrative (G&A) salaries, public company expenses, interest on financing arrangements, legal fees related to the enforcement of arbitration awards against the Vivos Group, and the timing of collections on client accounts receivable. Because client payments, on average, lag field talent payroll by approximately 49 days, working capital demands can fluctuate and occasionally present short-term challenges.

Our principal sources of liquidity include cash generated from operations via accounts receivable collections, borrowings under our Factoring Facility with Gulf, and, more recently, three separate receivables purchase arrangements. These arrangements function similarly to factoring but operate through supplier payment programs facilitated by client-affiliated financial institutions.

Several of our larger clients have recently adopted extended payment terms, 60 to 90 days. amounting to unilateral term extensions of 30 to 60 days. To mitigate the impact of these changes, we adopted Buyer-Initiated Payment (BIP) and Receivable Purchase Programs with American Express, MUFG, and JP Morgan. Combined with our factoring facility and biweekly prepayments (averaging approximately $56 every two weeks), these programs have materially improved our cash conversion cycle. Our Days Sales Outstanding (DSO) improved from 66 days at the beginning of 2023 to 49 days by March 2024 and has averaged 51 days since. For the trailing twelve months ended June 30, 2025, our DSO remained strong at 50.96 compared to 49.5 in the prior year period.

These BIP and Receivable Purchase Programs allow MMG to receive payment for 100% of client-approved invoices, net of a flat interest rate. For the MUFG program, rates vary based on daily invoice volume, with higher volume reducing the effective rate. The JP Morgan agreement, executed on April 23, 2025, purchases only one of our largest client's invoices within 15 days of approval, using the Secured Overnight Financing Rate (SOFR) plus an 80-basis point program fee. Based on current rates, this results in an annualized cost of approximately 5.27%, significantly lower than our average factoring APR of 10.6%, which is based on a prime rate of 7.5%.

Our factoring facility with Gulf advances 93% of eligible receivables, subject to a 15-basis point advance fee and an interest rate of prime plus 2%, with a floor prime rate of 4%. These financing arrangements, combined with the portion of client business that pays in advance of payroll (~$56 every two weeks), help offset the impact of approximately 32% of our revenue coming from clients on 90-day terms, some of which involve delayed issuance of purchase orders.

As of June 30, 2025, 96.8% of accounts receivable were current (aged <31 days), compared to 97.5% a year earlier. Our long-term credit performance remains strong, with total bad debt over the past five years amounting to just one hundred and eighty dollars.

Our primary uses of cash include payments to field talent, corporate and staff employee payroll and related liabilities, operating expenses, public company costs (including D&O and general liability insurance premiums, SEC filing and audit fees, legal and professional services, stock transfer agent costs, and board compensation), as well as factoring and borrowing-related interest, taxes, and debt service.

Due to the nature of our EOR business, where most contracted talent are W-2 employees paid known amounts on varying schedules, cash inflows from clients often do not align with required payroll disbursements. This mismatch necessitates our use of factoring and receivables financing to ensure timely fulfillment of payroll and other obligations.

As of June 30, 2025, the Vivos Debtors owed the Company $6,100 in notes receivable, which includes a $3,000 defaulted promissory note and a $750 unpaid tax obligation dating back to December 2019.

Following the Maslow-Reliability merger, the Company anticipated accessing capital markets and using its common stock as acquisition currency. However, all 300 million authorized shares of common stock were issued in connection with the merger. No additional shares are expected to become available until the legal dispute with the Vivos Debtors and the broader Vivos Group is resolved. Once resolved, the Company may pursue either an increase in authorized shares or a reverse stock split to create capacity for future capital raises or acquisitions.

There is no assurance as to the timing of such actions.

As of June 30, 2025, our working capital totaled $6,773, compared to $7,296 as of December 31, 2024. Adjusting for the notes receivable related to the Vivos Debtors, our working capital stood at $673, compared to $1,449 as of December 31, 2024.