PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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RELIABILITY INCORPORATED
UNAUDITED BALANCE SHEETS
As of March 31, 2017 and December 31, 2016
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Mar. 31,
2017
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Dec. 31,
2016
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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20,094
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$
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30,479
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Total current assets
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20,094
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30,479
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Total Assets
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$
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20,094
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$
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30,479
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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Current liabilities:
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Accounts payable and accrued liabilities
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$
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3,097
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$
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9,955
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Total Current Liabilities
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3,097
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9,955
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| Long term liabilities: |
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Accrued interest on loans
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16,737
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14,524
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Loans from Stockholder and affiliate
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90,000
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90,000
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Total Long-term Liabilities
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106,737
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104,524
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Total Liabilities
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109,834
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114,479
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Stockholders' equity (deficit):
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Preferred stock, without par value; 1,000,000 shares authorized, none issued and outstanding
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Common stock, without par value; 300,000,000 shares authorized; 17,268,993 shares issued
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9,912,150
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9,912,150
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Accumulated deficit
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(8,907,373
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)
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(8,901,633
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)
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Less treasury stock at cost, 354,300 shares
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(1,094,517
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)
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(1,094,517
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)
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Total stockholders' deficit
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(89,740
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)
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(84,000
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)
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Total Liabilities and Stockholders' Deficit
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$
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20,094
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$
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30,479
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The accompanying notes are an integral part of these statements.
RELIABILITY INCORPORATED
UNAUDITED STATEMENTS OF OPERATIONS
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Three months ended
March 31,
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2017
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2016
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Operating Expenses:
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General and administrative
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$
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3,527
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$
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3,831
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Interest Expense
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2,213
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1,243
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Total Expenses
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5,740
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5,074
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Net Loss
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$
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(5,740
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)
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$
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(5,074
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)
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Basic and diluted loss per share:
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$
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-
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$
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-
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Weighted average shares outstanding:
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Basic
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16,914,693
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16,914,693
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Diluted
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16,914,693
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16,914,693
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The accompanying notes are an integral part of these statements.
RELIABILITY INCORPORATED
UNAUDITED STATEMENTS OF CASH FLOWS
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Three months ended
March 31,
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2017
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2016
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Cash flows from operating activities:
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Net loss
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$
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(5,740
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)
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$
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(5,074
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Accrued interest on loans from stockholders and affiliate
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2,213
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1,243
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Accounts payable and accrued liabilities
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(6,858
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)
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(5,780
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)
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Net cash used in operating activities
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(10,385
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)
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(9,611
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)
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Net (decrease) in cash and cash equivalents
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(10,385
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)
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(9,611
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)
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Cash and cash equivalents:
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Beginning of period
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30,479
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11,923
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End of period
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$
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20,094
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$
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2,312
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Supplemental disclosure of cash flow information:
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Cash paid during the period for:
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Interest
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$
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-
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$
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-
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Income taxes
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$
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-
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$
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-
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The accompanying notes are an integral part of these statements.
RELIABILITY INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Reliability Incorporated (the "Company") was incorporated under the laws of the State of Texas in 1953, but the principal business of the Company started in 1971, and was closed down in 2007. The Company has no further operating activities and is now a shell company.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has concluded that it should look for acquisitions or identify a merger partner. There can be no assurances that the Company will be successful in completing such a transaction or be able to maintain sufficient liquidity over a period of time that will allow it to carry out these actions, in which case the Company might be forced to liquidate or seek protection under the Federal bankruptcy statutes, or both.
The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The Company is quoted on the OTCQB of the OTC Marketplace under the symbol "RLBY".
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q. Accordingly they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2016.
Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all highly liquid cash investments that mature in three months or less when purchased, to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.
Stock Options
Compensation cost relating to stock-based payments, including grants of employee stock options, is recognized in financial statements based on the fair value of the equity instruments issued on the grant date. The Company recognized the fair value of stock-based compensation awards as compensation expense in its statement of operations on a straight line basis, over the vesting period.
RELIABILITY INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2017
Income Taxes
Income taxes are provided under the asset and liability method and reflect the net tax effects of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company establishes valuation allowances when the realization of specific deferred tax assets is subject to significant uncertainty. The Company records no tax benefits on its operating losses, as the losses will have to be carried forward and realization of any benefit is uncertain.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Since the exercise price of the Company's outstanding stock options exceeded the average market price of its common shares during the periods presented, the options would have been anti-dilutive and were not considered in these calculations.
Fair Value of Financial Instruments
The carrying values of the Company's current assets and current liabilities approximated fair value due to their short maturity or nature. It is not practicable to estimate the fair value of the loans from stockholder and affiliate due to the related party nature of the amounts
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
Recently Issued Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance under U.S. GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The ASU is effective for all entities and for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU No. 2014-15 did not expected to have a significant impact on the Company's financial statements and related disclosures.
2. INCOME TAXES
The Company has substantial U.S. net operating loss carryforwards that will expire in 2023 through 2035. These carryforwards are subject to certain limitations on annual utilization and in the event of a change in ownership, as defined by tax law. See Note 2 to the Company's financial statements in its Form 10-K for the year ended December 31, 2016.
The Company's income tax returns remain subject to examination for the years 2013 through 2016 for federal and state purposes.
RELIABILITY INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2017
3. STOCKHOLDERS' EQUITY
(DEFICIT)
On January 15, 2014, the Company issued 3,401,360 shares of unregistered common stock in a private placement to Lone Star Value Investors, LP, an entity controlled by a former director and officer of the Company, for cash proceeds of $50,000. The proceeds of this issuance were used to assist in funding the Company's operating expenses.
4. LOANS FROM STOCKHOLDER AND AFFILIATE
On June 6, 2014, a shareholder, Lone Star Value Investors, LP, issued a promissory note to the Company in the amount of $50,000 (2014 Note). The proceeds of the note are being used for ongoing operating expenses. The loan bears interest at 10% per annum. Interest on the loan and the full amount of the principal is to be repaid on June 30, 2019.
On August 2, 2016, the Company issued a promissory note to an affiliate of a shareholder in the amount of $40,000 (2016 Note). The proceeds of the 2016 Note will be used for ongoing operating expenses. The 2016 Note bears interest at 10% per annum. Interest and principal on the 2016 Note is to be repaid on August 31, 2021, and all payments are subordinate to the payment of all outstanding amounts due under the 2014 Note.
During the three months ended March 31, 2017 and March 31, 2016, the Company recognized aggregate interest expense in the amount of $2,213 and $1,243 respectively. Total accrued interest on the 2014 Loan and 2016 Loan is $16,737 and $14,524 as of March 31, 2017 and 2016, respectively, and is included as a component of long-term liabilities on the accompanying balance sheets.
5. SUBSEQUENT EVENTS
No material subsequent events have occurred since March 31, 2017 that require recognition or disclosure in the financial statements.
RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
March 31, 2017
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis and other parts of this report contain forward-looking statements that involve risks and uncertainties, as well as current expectations and assumptions. From time to time, the Company may publish forward-looking statements, including those that are contained in this report, relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, its ability to maintain sufficient working capital, adverse changes in the economy, the ability to attract and maintain key personnel, its ability to identify or complete an acceptable merger or acquisition, and future results related to acquisition, merger or investment activities. The Company's actual results could differ materially from those anticipated in these forward-looking statements, including those set forth elsewhere in this report. The Company assumes no obligation to update any such forward-looking statements.
CRITICAL ACCOUNTING POLICIES AND COMMENTS RELATED TO OPERATIONS
This discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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, 2016.
Management's Discussion included in the Form 10-K for the year ended December 31, 2016 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 2017 operations; thus the reader of this report should read Management's Discussion included in Form 10-K for the year ended December 31, 2016.
RESULTS OF OPERATIONS
Revenues
Revenues for the three months ended March 31, 2017 and 2016 were zero, since all operations were discontinued as of September 30, 2007.
General and Administrative
General and administrative expenses for the three months ended March 31, 2017 were $3,527 and were $3,831, for the comparable period in 2016.
Interest Expense
The Company recognized interest expense related to the loans from stockholder and affiliate in the amount of $2,213 and $1,243 during the three months ended March 31, 2017 and March 31, 2016, respectively. Interest expense was previously reported as as a component of general and administrative expenses, but has been reclassified into a separate line item on the accompanying statements of operations. The increase during the three months ended March 31, 2017 is due to the $40,000 note from affiliate issued in August 2016.
LIQUIDITY AND CAPITAL RESOURCES
The Company has undertaken steps to reduce its expenses and improve the Company's liquidity, including the previous sale and discontinuance of all operations.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. However, the Company currently has no operating activities or source of revenue. There can be no assurances that the Company will be able to successfully complete a merger or acquisition or be able to maintain sufficient liquidity to continue to seek a merger or acquisition, in which case the Company might be forced to liquidate or seek protection under the Federal bankruptcy statutes, or both.
Net cash used by operating activities during the three months ended March 31, 2017 was $10,385 compared to $9,611 in the comparable period of 2016. The increase was attributable to an increase in net loss and accounts payable and accrued liabilities.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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Not applicable.
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Item 4. Risk Controls and Procedures
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(a) Evaluation of Disclosure Controls and Procedures. The Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the Principal Executive Officer and Principal Financial Officer to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(b) Changes in Internal Control over Financial Reporting. There were no changes in the Company's internal controls over financial reporting, known to the Principal Executive Officer and Principal Financial Officer, that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
RELIABILITY INCORPORATED
OTHER INFORMATION
September 30, 2015
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1a. Risk Factors
In addition to the other information set forth in this Quarterly Report, stockholders should carefully consider the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
The following exhibits are filed as part of this report:
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Exhibit No.
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Descriptiom
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31.1
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31.2
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32.1
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32.2
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101
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Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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RELIABILITY INCORPORATED
(Registrant)
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May 15, 2017
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/s/ Hannah Bible
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Hannah Bible
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President and Chief Executive Officer
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/s/ Hannah Bible
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Hannah Bible
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Chief Financial Officer
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INDEX TO EXHIBITS
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Exhibit No.
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Descriptiom
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31.1
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31.2
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32.1
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32.2
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101**
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Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL).
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** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections