RELIABILITY INC 10-K

ITEM 1A. RISK FACTORS There are numerous and varied risks that may prevent us from achieving our goals, including those described below. You should carefully consider the risks described below and the other information included in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. Our business, financial condition, and results of operations could be harmed by any of the following risks. If any of the events or circumstances described below were to occur, our business, financial condition, and results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline, and investors could lose part or all of their investment. The risks below are not the only risks we face. Additional risks not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition, or results of operations. All dollar amounts presented in this Form 10-K, unless otherwise specified, are expressed in thousands. Impact of Economic Conditions and Global Instability Demand for staffing and employer-of-record (“EOR”) services is closely tied to general economic conditions and client workforce needs. Economic downturns, labor market weakness, reductions in client spending, or industry-specific contractions may cause clients to reduce their use of our services, terminate engagements, or seek pricing concessions, any of which could reduce our revenue and profitability. In addition, broader events such as inflationary pressures, high interest rates, geopolitical instability, economic sanctions, public health events, or other disruptions may adversely affect clients’ operations, vendor payment behavior, and workforce demand. These conditions may also increase our operating costs, including compensation, benefits, insurance, and financing costs, and could adversely affect our business, financial condition, and results of operations. RISKS RELATED TO OUR COMPANY Our business model requires significant working capital Our business requires significant working capital, and delays in client payments or reduced access to receivables-based financing could adversely affect our liquidity. The Company utilizes receivables purchase programs with certain financial institutions. These arrangements may be accounted for as sales of financial assets under ASC 860 when control is surrendered; however, changes in structure or facts could result in a different accounting outcome. The classification of these arrangements requires judgment and is based on an evaluation of factors including control over the transferred assets and the Company’s continuing involvement. Changes in the structure of these arrangements or in the Company’s assessment of the applicable accounting criteria could result in a different accounting treatment, which could impact the Company’s reported financial position, results of operations, and cash flows. A significant portion of our services involves employing field talent and funding payroll, employment taxes, and benefit-related obligations before we collect payment from clients. As a result, our liquidity is sensitive to the timing of client payments, customer concentration, and the availability and cost of receivables-based financing arrangements, including factoring. If clients delay payment, dispute invoices, reduce usage of our services, or become unable to pay amounts owed, our cash flow may be adversely affected. If receivables-based financing is reduced or becomes more expensive (including due to concentration limits, eligibility requirements, or other program restrictions), we may experience liquidity constraints. Such constraints could impair our ability to fund payroll and operating needs and increase financing costs, which could adversely impact our business, financial condition, and results of operations. 10 We may not be able to raise additional capital on acceptable terms, if at all, and equity financings may dilute existing shareholders. We have ongoing needs for working capital to fund operations, invest in systems and personnel, pay costs associated with being a public company, and pursue strategic initiatives. We may be required to raise additional funds through equity or debt financing. While we may be able to obtain additional debt or equity financing, such financing may be available only on terms that are costly, include restrictive covenants, require significant collateral, or result in substantial dilution to existing shareholders. Any future sale or issuance of equity securities would dilute existing shareholders and could be at prices substantially below the prices at which our shares trade. If additional debt is incurred, we may be subject to meaningful debt service obligations and covenants that could restrict our operations and liquidity. If we are unable to raise capital or generate adequate cash from operations, we may be required to reduce costs, delay initiatives, forego business opportunities, or pursue other alternatives that could materially adversely affect our business. Our capital structure and potential future issuances of shares, including shares held in treasury, could dilute existing shareholders and adversely affect the market price of our common stock. We may seek to raise capital, pursue acquisitions, recapitalize the Company, or fund strategic initiatives through the issuance of equity securities, including shares currently held in treasury, or through the issuance of convertible securities or warrants. The sale or issuance of a substantial number of shares of common stock, or the perception that such sales may occur, could adversely affect the market price of our common stock and increase volatility. Any such issuance would dilute existing shareholders and could reduce earnings per share or voting power. In addition, the availability of treasury shares for reissuance may create an overhang that could negatively impact investor perception or market pricing. Our revenue and accounts receivable are highly concentrated among a small number of customers, and the loss of, or reduction in business from, one or more major customers could materially adversely affect our results. We depend on a limited number of customers for a significant portion of our revenue. For the year ended December 31, 2025, our two largest customers represented approximately 58.4% of total revenue, and our top five customers represented approximately 76.7% of total revenue. A substantial portion of our revenue is derived from EOR arrangements with large institutional clients. The loss of, or a substantial reduction in business from, any of these customers, whether due to budget reductions, internalization of workforce needs, program changes, competitive pressures, regulatory developments, or other factors, could significantly reduce our revenue and adversely affect our operating results. We may not be able to replace lost revenue on a timely basis, or at all. In addition, and consequently, accounts receivable is concentrated among a small number of customers. If one or more major customers delays payment, disputes invoices, or becomes unable to pay, our liquidity and working capital could be materially adversely affected. Our business is sensitive to economic downturns, and clients may reduce their use of our services or delay payments. Because demand for staffing and workforce solutions is sensitive to changes in the level of economic activity, our business may suffer during an economic downturn. When demand drops, our operating results may be impacted unfavorably because selling and administrative expenses may not decline as quickly as revenue. In addition, during downturns clients may slow vendor payments, seek more flexible payment terms, dispute charges, or become unable to pay their obligations. These factors could significantly affect our business, financial condition, and results of operations. We are exposed to employment-related claims and costs, and litigation or regulatory actions could be costly and adversely affect our business. Our business model involves employing individuals and placing them in client work environments over which we have limited control. As the employer of record for many placements, we assume certain risks and potential liabilities, including claims relating to discrimination, harassment, workplace safety incidents, wage and hour compliance (including meal and rest break requirements), overtime classifications, worker classification standards, immigration matters, employee benefits, wrongful termination, background screening, privacy, and other employment-related matters. Certain jurisdictions, including California and New York, provide for representative actions, statutory penalties, and enhanced remedies for technical or administrative violations of wage and hour laws. Even inadvertent errors in payroll practices or compliance procedures may result in claims, investigations, fines, penalties, settlements, and / or defense costs. As a result, we may incur fines, penalties, damages, legal fees, and other costs, and we may be subject to negative publicity. Litigation and regulatory matters can be expensive, time-consuming, and distracting to management, and could materially adversely affect our business, financial condition, and results of operations. We assume payroll and related obligations for our employees and are exposed to client credit risk. We generally assume responsibility for payroll and related obligations for field talent, including the payment of wages and certain employment taxes. These obligations are fixed regardless of whether clients make payments in accordance with their contractual terms. If clients fail to pay on a timely basis or at all, we may be required to fund payroll and related obligations using working capital or financing sources, which could materially adversely affect our liquidity and results of operations. 11 Workers’ compensation and other insurance costs may increase and reduce our margins and liquidity. We are responsible for workers’ compensation and other insurance costs for both staff employees and field talent. Premiums, claims frequency and severity, medical cost inflation, actuarial estimates, and changes in insurance markets or regulations may increase costs. There can be no assurance that we will be able to increase fees charged to clients in a timely manner or in amounts sufficient to cover increased insurance-related costs. Increased costs could reduce margins, increase working capital requirements, and materially adversely affect our business, financial condition, and results of operations. Government regulation could increase compliance costs and expose us to penalties or liability. Our business is subject to numerous federal, state, local, and, in some cases, international laws and regulations, including employment, wage and hour, paid leave, workplace safety, unemployment insurance, worker classification, data privacy, and other requirements. Because we place employees across multiple jurisdictions, compliance can be complex and resource intensive. Changes in law, increased enforcement activity, or failures in compliance processes could result in fines, penalties, litigation, and reputational harm, and could materially adversely affect our business, financial condition, and results of operations. The success of our business depends on our ability to attract and retain qualified employees and field talent. Our success depends on our ability to attract and retain qualified personnel, including recruiters, sales and client service staff, and field talent with skills demanded by clients. Competition for qualified personnel may intensify, compensation levels may increase, and the available pool of qualified talent may be limited to certain specialties. If we cannot attract and retain qualified personnel, the quality of our services may deteriorate, our ability to grow may be constrained, and our business and results of operations may be materially adversely affected. Our business depends on key members of management, and the loss of their services could disrupt operations. Our future success depends in part on the experience and leadership of key members of our management team. The loss of one or more key personnel, or difficulties in recruiting and retaining qualified management and operational personnel, could disrupt operations, adversely affect customer relationships, delay strategic initiatives, and materially adversely affect our business, financial condition, and results of operations. Cybersecurity incidents or data breaches could disrupt operations and expose the Company to liability. We collect, store, and transmit sensitive employee and client information. Security controls and practices may not prevent improper access to, or disclosure of, confidential information, including personally identifiable information. Cybersecurity incidents may occur through a variety of means, including malware, ransomware, social engineering, credential compromise, or system vulnerabilities. Any incident that results in unauthorized access, disclosure, or loss of data could harm our reputation, result in contractual or regulatory liability, and increase costs, which could materially adversely affect our business, financial condition, and results of operations. In addition, data privacy and cybersecurity regulations are evolving and may increase compliance costs. The Company could face disruption and increased costs from outsourcing or the use of third-party service providers. We rely on third-party providers and may outsource certain functions. Transitioning processes to third parties or offshore resources may create risks of errors, omissions, service disruptions, or control failures. Any such issues could negatively impact clients, damage our reputation, and result in liability or loss of customers. Our acquisition strategy creates risks, and acquisitions may not be successful. We may pursue acquisitions of businesses, assets, or technologies. We may fail to identify attractive targets or may be unable to complete acquisitions on acceptable terms. Acquisitions involve risks, including integration difficulties, diversion of management attention, overvaluation, unanticipated liabilities, impairment of goodwill or intangibles, disruption to customer or employee relationships, and challenges in maintaining internal controls. If acquisitions are not successful, our business and results of operations could be materially adversely affected. Our operations across numerous geographies may be affected by natural disasters, travel disruptions, or other events beyond our control. We operate in multiple jurisdictions and may be affected by natural disasters, severe weather, travel disruptions, terrorism, war, public health events, or other factors beyond our control. These events could adversely affect our ability to service clients, impact employees and vendors, disrupt operations, and materially adversely affect our business, financial condition, and results of operations. 12 RISKS RELATED TO OWNERSHIP OF COMMON STOCK The market price of our common stock may be volatile or may decline regardless of our operating performance. The market price of our common stock has been, and may continue to be, volatile. The market price may fluctuate significantly due to factors beyond our control, including fluctuations in operating results, lack of analyst coverage, the OTC market environment, “penny stock” rules, sales of significant blocks of stock, general market conditions, and other events. In addition, stock markets have experienced extreme price and volume fluctuations that have affected the market prices of equity securities of many companies. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and management attention, and adversely affect our business, results of operations, and financial condition. Our common stock is subject to “penny stock” rules, which may reduce liquidity and increase transaction costs for investors. Our common stock may be deemed a “penny stock” under SEC rules. The application of “penny stock” rules and FINRA sales practice requirements may reduce the ability of broker-dealers to recommend or execute transactions in our common stock, which could reduce liquidity, increase transaction costs for investors, and adversely affect the market price of our common stock. We do not intend to pay dividends for the foreseeable future. We have never declared or paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We anticipate retaining any future earnings for use in our business. RISKS RELATED TO OUR PREVIOUS STATUS AS A SHELL COMPANY Restrictions on reliance on Rule 144 applicable to former shell companies may limit resale of restricted securities. Rule 144 may be unavailable for the resale of securities issued by an issuer that is a shell company or was previously a shell company, unless certain conditions are met, including continued compliance with Exchange Act reporting requirements. If we fail to meet these conditions, resale of restricted securities under Rule 144 may be limited, which could adversely affect liquidity for holders of restricted securities. We may have contingent liabilities arising from actions taken by prior owners or related parties that were not disclosed to us at the time of the Merger. Although we believe previously identified matters have been resolved, prior owners of Maslow and related entities entered into financing arrangements, guarantees, and litigation matters in which Maslow was included as a borrower, guarantor, or named party without the knowledge of current management at the time of the Merger. While certain of these matters have been settled, there can be no assurance that additional undisclosed liabilities, guarantees, or claims will not arise. If we become subject to such obligations, the resulting legal costs, settlements, or judgments could materially adversely affect our business, financial condition, and results of operations. RISKS RELATED TO BEING A PUBLIC COMPANY Costs and risks associated with being a public company, including compliance with internal control requirements, may adversely affect our business. As a public company, we incur significant legal, accounting, governance, and compliance costs and demands on management. We are required to maintain effective disclosure controls and internal controls over financial reporting, including compliance with Section 404 of the Sarbanes-Oxley Act. Although we are currently exempt from auditor attestation requirements applicable to larger issuers, compliance with these requirements requires significant management attention and financial resources. If we fail to maintain effective internal controls, identify material weaknesses, are unable to recruit and retain qualified accounting and finance personnel, or fail to timely prepare and file required reports, we could be required to restate financial statements, become subject to regulatory scrutiny, lose investor confidence, and experience a decline in our stock price. Evolving disclosure, governance, and compliance requirements applicable to public companies may increase costs and require ongoing modifications to our practices, diverting management time and resources from operating the business. OTC Listing + Exchange Eligibility Our common stock is not listed on a national securities exchange, and an active trading market may not develop. Our common stock is quoted on the OTC Markets platform, and the Company currently files periodic reports with the Securities and Exchange Commission. Our securities are not listed on a national securities exchange such as the New York Stock Exchange or Nasdaq, and we do not currently meet the quantitative listing standards required for such exchanges. There can be no assurance that we will qualify for or obtain a listing on a national securities exchange or maintain quotation on a higher tier of the OTC Markets platform in the future. 13 Trading in securities quoted on OTC markets is generally less liquid than trading on national securities exchanges. Limited trading volume, a relatively small public float, and reduced market visibility may make it difficult for investors to buy or sell our common stock at desired prices. These factors may also contribute to significant volatility in the market price of our common stock and could adversely affect our ability to raise capital or use equity securities as consideration in acquisitions or other strategic transactions. In addition, our common stock may be deemed a “penny stock” under applicable SEC rules. Broker-dealers effecting transactions in penny stocks are subject to additional regulatory requirements, including enhanced disclosure obligations and suitability determinations. These requirements may discourage broker-dealer participation in trading our securities and could further limit liquidity and market activity in our common stock.