RELIABILITY INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. 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; our continued inability to issue additional shares of equity securities; 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 Annual Report, including the “Risk Factors” in Item 1A of this Annual Report 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 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 this Annual Report on Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this Annual Report on Form 10-K. All dollar amounts presented in this Form 10-K, unless otherwise specified, are expressed in thousands. Our financial information may not be indicative of our future performance. EXECUTIVE OVERVIEW Non-GAAP Financial Measures The Company uses Operating Income Before Interest, Taxes, Depreciation and Amortization (“OIBITDA”) as a supplemental measure of operating performance. We define OIBITDA as operating income (loss) before interest, taxes (incl. franchise and state minimum taxes), depreciation and amortization and certain corporate overhead expenses associated primarily public company governance, compliance and legacy legal matters. OIBITDA is not a measure of financial performance under U.S. GAAP and should not be considered a substitute for net income (loss) or operating income (loss). However, management believes OIBITDA provides investors with useful information to evaluate core operating results by excluding the effects of non-cash depreciation and amortization and certain corporate expenses associated with maintaining the Company’s public reporting structure. Management uses OIBITDA to evaluate operating performance, prepare budgets and forecasts, and assess performance relative to internal targets. A reconciliation of net income (loss), the most directly comparable GAAP measure, to OIBITDA is presented below: December 31, 2025 2024 Operating Income $ (830 ) $ (707 ) Depreciation and amortization 29 23 State & local taxes 15 28 Corporate public company expense 743 658 $ (43 ) $ 2 Operational performance comparison for the years ended December 31, 2025, and 2024 are as follows: December 31, 2025 2024 Revenue $ 20,717 $ 23,982 Gross profit $ 2,952 $ 3,192 OIBITDA $ (43 ) $ 2 Income (loss) before income taxes (650 ) (594 ) Net income (loss) $ (664 ) $ (594 ) Certain state minimum taxes were reclassified from SG&A to income tax expense in 2025 to conform with current period presentation. 2025 Financial Performance Overview In 2025, MMG generated revenue of $20,717, a decline of $3,265 (13.6%) from $23,982 in 2024. The decrease was primarily attributable to reduced EOR revenue; however, performance in our staffing segment improved meaningfully year-over-year. Staffing revenue increased by $771 (23.4%) and staffing gross margin expanded to 23.0% from 18.7% in 2024. Total gross profit declined to $2,952 from $3,192 in 2024, a decrease of $240 (7.5%). Importantly, the decline in gross profit was proportionally less than the decline in revenue, resulting in an overall 90 basis point gross margin improvement to 14.2% in 2025 compared to 13.3% in 2024. Selling, General and Administrative expenses decreased by $117 to $3,782 (3.0%) in 2025, compared to $3,899 in 2024. Interest income of $514 exceeded interest expense of $105 during 2025, but other expense totaled $229, consisting primarily of legal fees associated with recovery of arbitration awards and $73 in loss on sale of receivables, an improvement of $20 compared to $249 of other expense recorded in 2024 . 16 Enterprise Client Performance Our top five enterprise clients remained active in 2025, each generating at least $1,000 in revenue, consistent with the prior year. Our largest client generated $6,535 in revenue in 2025, an increase of $1,116 (20.6 %) over 2024, nearly matching the prior year’s record level. Our second-largest client generated $5,565 in revenue, a decline of $888 (13.8%) compared to 2024. Our third-largest client in 2025 was previously ranked fourth in 2024. Revenue from this client increased modestly by $29 (2.0%) to $1,429. The shift in ranking was primarily attributable to a significant decline from our prior third-largest client, whose revenue decreased by $2,214 (65.3%) to $1,177. Gross Profit and Margin Analysis Although total gross profit declined by $240 in 2025, consolidated gross margin improved to 14.2% from 13.3% in 2024, reflecting favorable changes in revenue mix and improved performance within the Staffing segment. The 90 basis point increase in gross margin was driven by the following factors: 1. Growth in Staffing revenue and margin expansion contributed approximately 190 basis points of positive impact. This improvement was largely driven by expansion in managed services and consulting activity, which increased by $1,653, from $964 in 2024 to $2,617 in 2025, generating approximately $221 of incremental gross profit. 2. Increased utilization of lower-margin 1099 EOR contractors , which negatively impacted consolidated gross margin by approximately 90 basis points. 3. Lower Direct Hire performance , partially offset by improvement in Video Production margins, resulting in a net negative impact of approximately 10 basis points. Over the past seven years, MMG has meaningfully improved gross margin, increasing from 10.3% in 2018 to a peak of 14.2% in 2023. In 2024, this trend was temporarily interrupted as growth in discounted 1099 EOR revenue reduced consolidated margin to 13.3%. In 2025, consolidated margin returned to 14.2%, matching the Company’s historical peak. Within the EOR 1099 segment, gross profit declined from $2,445 in 2024 to $1,933 in 2025, representing an 11.8% gross margin. This mix shift reduced consolidated margin by approximately 70 basis points. Offsetting this pressure, Staffing gross profit increased by $317 on revenue growth of $771, resulting in gross margin expansion from 18.7% in 2024 to 23.0% in 2025. Within Staffing, W-2 placements generated $338 of incremental gross profit year over year, on $813 of additional revenue, producing a 23.4% gross margin compared with 18.8% in 2024. The largest contributor to margin improvement within Staffing was the Company’s managed services business, which generated approximately $221 of incremental gross profit and contributed approximately 150 basis points of consolidated margin improvement. Late-year consulting activity contributed an additional 10 basis points, bringing the combined managed services and consulting impact to approximately 160 basis points of consolidated margin expansion. Overall, the positive impact from Staffing margin expansion (approximately +190 basis points), partially offset by 1099 EOR mix pressure and modest Direct Hire and Video Production changes, resulted in a net 90 basis point improvement in consolidated gross margin year-over-year. Operational Transition and Outlook During 2025, the Company continued to incur legal expenses and devote executive resources to matters involving the Vivos Group. Legal costs associated with these matters totaled $159 and were recorded within Other Income (Expense) (see Results of Operations). Following execution of a settlement agreement on February 16, 2026, management expects legal costs associated with award recovery and related proceedings to decline in 2026. Maslow had historically generated positive operating income as reflected in OIBITDA (See ITEM 7) prior to 2025. In 2025, however, Maslow saw an operational loss and landed with OIBITDA of ($43), compared to OIBITDA of $2 in 2024 and $57 in 2023. Management views 2025 as a transitional year characterized by revenue contraction in certain service lines, expansion of staffing activities, cost realignment initiatives, and restructuring of the sales organization intended to support future growth. 17 Outlook for 2026 The Company enters 2026 with a streamlined cost structure, strengthened sales leadership, and a renewed focus on higher-margin service lines. During the second half of 2025, management implemented targeted cost reductions and selectively outsourced certain administrative functions to improve operational efficiency and enhance operating leverage. These actions are expected to better position the Company to scale revenue without a proportional increase in fixed costs . In 2025, the Company invested in commercial leadership, including the hiring of a Vice President of Sales and a Client Development Manager with media staffing expertise. An additional experienced sales resource is expected to join in early 2026. The Company has been invited to participate in several competitive RFP processes and is expanding its reach beyond traditional media verticals. Based on current pipeline visibility, management anticipates revenue growth in 2026 relative to 2025, subject to client demand and broader economic conditions. Staffing Solutions, including managed services and direct hire, are expected to represent an increasing proportion of revenue. These service lines historically generate higher gross margins than EOR services and are expected to contribute positively to blended margin performance. While EOR remains an important foundational revenue stream, management’s strategy is to gradually rebalance revenue mix toward higher-margin staffing and managed services offerings. Improved profitability is a key objective for 2026. Management expects to reduce operating losses compared to 2025 through revenue growth, margin mix enhancement, and disciplined cost management. Hiring plans remain targeted primarily toward revenue-generating roles, with additional expansion contingent upon sustained growth. The Company continues to actively manage working capital and liquidity. Receivables-based financing arrangements remain an integral component of payroll funding operations, and management evaluates funding sources based on cost of capital, timing, and client concentration considerations. Capital discipline will remain central to operational decision-making. As discussed in Items 1A and Item 3, treasury shares may provide future capital structure flexibility, including potential use in equity financing transactions or strategic acquisitions. Given current liquidity priorities, management views acquisition activity in 2026 as opportunistic rather than near-term dependent. The Company successfully transitioned to the OTC-ID market tier during 2025 and continues to evaluate potential advancement to higher OTC tiers, including OTCQB or OTCQX, subject to meeting applicable requirements and strategic considerations. Management remains focused on strengthening operating performance as the primary driver of long-term shareholder value. COMPANY OVERVIEW Maslow is a workforce management solution provider with proven capabilities delivering employer of record (EOR), Staffing Solutions services, consisting of media, IT, and administrative resources. We provide services to clients primarily within the United States of America. Our services consist of: ● Employer of Record (“EOR”): A unique workforce solution for any organization who seeks efficiency in employee administrative management including payroll and benefits, labor risk associated with compliance with federal-state and local regulations including Fair Labor Standards Act (“FLSA”), in onboarding and offboarding employees, and in managing benefit costs. One major difference in this service offering is that our customers usually source the talent and MMG hires and leases the employees to our customers. ● Staffing Solutions: Staffing covering a wide variety of specialties: media, information technology (“IT”), accounting and finance, HR, marketing, sales, and other administrative personnel. Staffing Solutions includes a variety of types including temporary, contracted, managed services and consulting. ● Video and Multimedia Production: With 35 years of experience, the Company’s subsidiary, Maslow, offers script-to-screen expertise including producers, audio engineers, editors, broadcasters, makeup artists, camera crews, Gaffers and grips, drone operators, and more. ● Direct Hire: We strategically recruit and fill a variety of full-time roles for our customers which is only limited by our recruiting capabilities, which are already quite diverse. The Company’s subsidiary, The Maslow Media Group, Inc., is currently the only operating entity for the business. After our Merger in October 2019, non-operational expenses (e.g., public company fees, D&O insurance, investor relations, etc.) were assigned at the corporate level. This enables a more pristine, focused view of the operational side of the business we refer to as Operational Income Before Interest, Taxes, Depreciation, and Amortization (OIBITDA). 18 RESULTS OF OPERATIONS Maslow generated revenues of $20,717 for the year ending December 31, 2025, representing a decrease of $3,265 (13.6%) compared to $23,982 for the year ended December 31, 2024. The decline was primarily attributable to reduced activity from two of our largest clients. One client experienced funding constraint resulting in a revenue decrease of $2,214 (65.3%), while another client generated $5,565 in revenue in 2025, representing a decrease of $888 (13.8%) compared to 2024. Additionally, three clients that ceased conducting business with the Company during 2024 accounted for approximately $1,398 of the year-over-year revenue decline. Our top ten clients represented 19,270, or approximately 93.0%, of total revenue in 2025, compared to $21,269, or 89.1%, of total revenue in 2024. In December 2025, rebates totaling $13 were issued to customers that achieved contractual revenue thresholds, compared to $70 in 2024. This total changed not due to lower revenues but due to an agreed excluded class of revenue. The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenues, and were derived from our consolidated financial statements. December 31, 2025 2024 Revenue $ 20,717 $ 23,982 Cost of services 17,765 20,790 Gross profit 2,952 3,192 Selling, general and administrative expenses 3,782 3,899 Operating loss (830 ) (707 ) Interest income 5 18 Interest income from related parties 509 452 Interest expense (105 ) (108 ) Other income (expense) (229 ) (249 ) Income/(Loss) before taxes (650 ) (594 ) Income tax benefit (expense) (14 ) - Net Income (Loss) $ (664 ) $ (594 ) Revenues: By Segment 2025 % of Revenue 2024 % of Revenue EOR $ 16,400 79.2 % $ 20,382 85.0 % Staffing Solutions 4,072 19.7 % 3,301 13.7 % Video and Multimedia Production 208 1.0 % 204 0.9 % Direct Hire 37 0.2 % 95 0.4 % Total Revenue $ 20,717 100 % $ 23,982 100 % Employer of Record (EOR) Revenues : Employer of Record (“EOR”) revenue totaled $16,400 in 2025 compared to $20,382 in 2024, representing a decrease of $3,982 (19.5%). EOR revenue represented 79.2% of total revenue in 2025 compared to 85.0% in 2024. The decrease was primarily attributable to reduced activity from one significant enterprise client, which accounted for approximately $2,190 of the decline. Approximately $700 of the decline related to clients that ceased operations with the Company during 2024. An additional $463 resulted from a client transitioning personnel to a managed staffing arrangement. Other client-level demand fluctuations accounted for the remaining variance. Revenue declines among EOR clients totaled approximately $5,650, partially offset by approximately $2,119 of increased activity among other clients. Staffing Solutions Revenues : Staffing revenue increased $771 (23.4%) to $4,072 in 2025 from $3,301 in 2024. Staffing represented 19.7% of total revenue in 2025 compared to 13.8% in 2024. The increase reflects continued expansion in Media Staffing and improved demand across select accounts. Video and Multimedia Production Revenues : Revenue from video production services, including managed services and project-based freelance work, increased by $4, from $204 in 2024 to $208 in 2025. This segment represented 1% of total revenue, compared to 10 bps lower at 0.9% in 2024. 19 Gross Profit: Gross profit for 2025 was $2,952 compared to $3,192 in 2024, representing a decrease of $240 or 7.5%. Despite lower revenue, consolidated gross margin improved to 2023 levels at 14.2% in 2025 from 13.3% in 2024. The overall margin improvement was driven primarily by: ● Increased contribution from Staffing Solutions, which grew by $771 (23.4%) and represented 19.7% of total revenue compared to 13.8% in 2024. ● Expansion in Staffing Solutions gross margins to 23.0% from 18.7% in 2024. ● The Managed Service Staffing component alone drove 1.5 % of total business margin improvement ● Improved margins within Video Production services. Managed services expanded in 2024 and 2025 to 2,617 from approx.$84 in 2023, carrying gross margins of 25.3% in 2025. Couple this with $17 in revenue at 41.5% margin consulting-based staffing, and staffing margin expanded by 4.4%, with the aforementioned 1.6% in overall margin expansion. EOR gross margin declined to 11.8% in 2025 from 12.0% in 2024. The decrease was primarily attributable to: ● Revenue mix shift, including approximately $1.5 million of lower-margin 1099 contractor project activity; ● Increased workers’ compensation expense of approximately $34 due to higher experience modification factors; and ● Portfolio contraction of standard-margin revenue, which reduced operating leverage. Non-EOR gross margins improved to 23.6% from 20.8 % in 2024. Selling, General and Administrative Expenses (“SG&A”): SG&A expenses decreased by $117 (3.0%) to $3,782 in 2025 compared to $3,899 in 2024. The most significant driver of the decrease was lower salary and benefits expense of $260, primarily consisting of bonus reductions of $127, wage savings of $102, payroll tax reductions of $11, and lower health benefit costs of $17. As a result, loaded salary and wages as a percentage of total SG&A decreased from 72.9% in 2024 to 68.4% in 2025. Other key drivers of changes in SG&A were as follows: ● Contract Services decrease by $17 or 35.4 % ● Business Insurance package decrease by $13 or 6.6% ● Marketing & Promotion expense decrease by $10 or 18.9% ● Legal fees and no-fault settlement increased costs by $163 ● Software increased by $22 or 12.1% ● Accounting Fees associated with tax and PCAOB audit requirements increased by $12 or 7.8% From an MMG operational perspective, SG&A costs were down $202 or 6.2% in 2025 from 2024. Loaded Salaries, inclusive of benefits, commissions, payroll tax, and bonus were favorable by $186 in the year ending December 31, 2025, compared to same period in 2024. Marketing, Contract services and Business Taxes were favorable by $18, $17 and $12 , respectively while Software costs increased by $22. $14 of the Business Tax decrease was a reclassification to state income taxes in 2025. Corporate costs, which consist of nonoperational and mostly public costs, were $86 or 13.1% greater in 2025 to 2024. This sole driver was an employment related settlement for $125 which included another $38 in associated legal fees. Otherwise, loaded salaries were down $75, and business insurance favorable by $12. Cost increases were in the areas of accounting by $9 and $8 for web services. Interest Income : Interest income from related parties rose by $57, to $509 from $452, as adjustments were made to interest in 2024 based on re-interpretation of the awards. Maslow also earned $5 in FDIC insured money market interest versus the $18 in interest income earned in 2024 which included $14 from a federal tax refund (2016–2020) and $4 from the same money market account. Other Income (Expense): In 2025, the Company recorded net other expense of $229, compared to $249 in 2024, representing a year-over-year improvement of $20. The composition of other income (expense) differed significantly between periods. In 2025, other expense included $72 of losses on receivables sold under the Company’s receivables purchase programs and $157 of legal costs associated with recovery of the Vivos arbitration award. In contrast, 2024 included $379 of non-operational costs, primarily consisting of legal fees and settlements related to receivership activities ($143), restructuring costs ($121), and Vivos-related matters ($115). These costs were partially offset by $127 of recoveries related to previously overpaid IRS interest and penalties, as well as a $3 credit card rebate. Recurring items common to both periods were minimal and included nominal credit card rebates of $1 in 2025 and $3 in 2024. Interest Expense: Interest expense was lower by $3 from $108 in 2024 to $105 in 2025 as the need for using our Gulf Coast factoring facility was partially supplanted by the sales of receivable programs. Lower interest rates also helped as the average Gulf rate was 10.3% in 2025 compared to approximately 11.3% in 2024. Income Taxes: The Company recorded no federal income tax expense in 2025 or 2024 primarily due to net operating loss carryforwards and a full valuation allowance against deferred tax assets. State income tax expense for 2025 is $14 versus $0 in 2024. 20 LIQUIDITY AND CAPITAL RESOURCES Overview As of December 31, 2025, the Company’s primary sources of liquidity consisted of cash on hand, cash generated from operations, receivables purchase arrangements, and access to invoice factoring facilities. The Company’s primary liquidity requirements include funding payroll and related costs for field talent, operating expenses, professional fees, and compliance costs associated with operating as a public company. Because payroll and related employment costs are generally funded prior to the collection of client receivables, the Company’s working capital requirements are sensitive to client payment timing, revenue concentration, and fluctuations in business activity. Operating Cash Flow and Working Capital During 2025, the Company incurred a net loss of $664. Although gross margins improved year-over-year, revenue contraction reduced overall gross profit dollars and contributed to pressure on operating cash flow. Accounts receivable levels fluctuate based on revenue volume and client payment cycles. Certain enterprise clients operate on extended payment terms, and payment timing variability may cause short-term working capital compression. In addition, seasonal revenue patterns and year-end billing cycles may impact interim liquidity. Management actively monitors weekly cash flow projections and payroll funding requirements. The Company has historically utilized receivables-based financing arrangements to bridge the timing difference between payroll funding and client collections. Receivables Financing and Factoring Arrangements The Company maintains a receivables factoring facility with Gulf Coast Business Credit to provide working capital liquidity. Under this arrangement, eligible invoices are sold or advanced at a specified percentage of face value, with fees based on advance rates and interest spreads above prime. Factoring provides immediate liquidity but requires settlement upon ultimate client payment, and the effective cost of capital is influenced by client payment timing. In 2025, the Company also began utilizing receivables purchase programs administered by JPMorgan (“JPM”) and MUFG Bank Ltd. (“MUFG”) for certain invoices related to a large enterprise client. Under the JPM arrangement, invoices are purchased at a discount based on a rate at approximately 80 basis points over SOFR for the expected collection period, typically ranging from 100 to 105 days. Under the MUFG arrangement invoices are purchased at a discount based on a rate at approximately 235 basis points over SOFR for the expected collection period, typically at 60 days. Compared to traditional factoring, both the JPM and MUFG programs provide a lower cost of capital for these receivables but typically results in funding within five to ten days of invoice approval rather than immediate advance. The Company evaluates funding alternatives based on cost of capital, timing requirements, and concentration exposure. Liquidity Sensitivities The Company’s liquidity is primarily influenced by: ● Revenue concentration among large enterprise clients; ● Client payment timing and extended payment terms; ● Payroll funding requirements for field talent; ● Seasonal fluctuations in activity; and ● Operating losses. Receivables based financing arrangements are a consistent component of the Company’s payroll funding process due to the timing differences between payroll obligations and client collections. As revenue volumes declined during 2025 and operating losses reduced available working capital, reliance on both of these financing arrangements increased. While such arrangements provide essential liquidity, they increase financing costs and may adversely impact operating results. Outlook and Liquidity Sufficiency Management has prepared cash flow projections covering the twelve-month period following issuance of these financial statements. Based on current revenue expectations, modest growth assumptions, stable gross margin performance, and anticipated operating expenses adjusted for inflationary trends, management believes that existing receivables-based financing arrangements and projected operating cash flows will provide sufficient liquidity to meet anticipated obligations as they become due over the next twelve months. 21 These projections are subject to inherent uncertainty, including revenue variability, client payment timing, and continued access to receivables-based financing. Material adverse changes in these factors could require additional financing or further cost containment measures. Capital Structure and Strategic Flexibility In February 2026, the Company entered into a settlement agreement with members of the Vivos Group providing for the transfer of previously issued shares of the Company’s common stock to the Company in satisfaction of certain related-party obligations. The Company has filed a motion seeking entry of a consent judgment to effectuate the transfer of these shares through the Company’s transfer agent . Upon completion of the transfer process, the return of these shares is expected to simplify the Company’s capital structure and may provide additional flexibility to pursue recapitalization initiatives, strategic transactions, or equity-based financing opportunities if deemed appropriate by management and the Board . The Company continues to evaluate opportunities to improve operating leverage, enhance gross margin mix, and optimize working capital efficiency. As of December 31, 2025, our working capital was $6,646 compared to $7,296 on December 31, 2024. Adjusted Working Capital (excluding $6,357 in Notes Receivable) was $290 versus $1,449 at the end of 2024. In 2026, we do anticipate SG&A to be relatively stable as some of cost cuts that were made in administrative support staff will have a greater impact with an estimate loaded salary run rate of $126. We expect to add more Sales, Recruiting and Human Resource resources in 2026, which will likely be the source of most cost increases. We also factored in price increases due to inflation but at a lower rate than a year ago. For 2025, a summary of our operating, investing, and financing activities is shown in the following table : December 31, 2025 2024 Net cash provided by (used in) operating activities $ 1,914 $ (2,587 ) Net cash used in investing activities (11 ) (68 ) Net cash provided by (used in) financing activities (1,942 ) 2,355 Net change in cash and cash equivalents $ (39 ) $ (300 ) Operating Activities Cash flows from operating activities primarily consist of net income (loss), adjusted for non-cash items such as depreciation and amortization, as well as changes in working capital. The key factors influencing cash inflows and outflows include factoring, accounts receivable, and accrued payroll and expenses. In 2025, net cash afforded in operating activities was $1,889, representing an increase of $4,476 compared to net cash outlay of $2,587 in 2024. This increase was primarily driven by a $3,166 decrease in trade receivables as billing in last quarter was down approximately $580 and cash conversion via collection acceleration was approximately $2,510 Accrued expenses and deferred revenue were cash positive at $36 and $27, respectively. Offsetting cash decreases were in the form of accrued third party-related interest of $510, accrued payroll at $190, and the net loss after taxes of $651. Investing Activities Cash used in investing activities consisted of $11 for laptops in contrast to the $68 invested in 2024 for implementation of ADP Workforce Now, $52 and $16 for laptops. Financing Activities Net Cash repatriated for financing activities was $1,917 in contrast to the $2,355 borrowed net balance in 2024. Factoring proceeds were $8,299 and repayments were $10,220 in 2025. Repayments, hence increased by $3,290 over the $6,930 returned to Gulf in 2024. In 2025, borrowing was $833 lower than 2024 when it was $9,132. 22 OFF-BALANCE SHEET ARRANGEMENTS We had no material off-balance sheet arrangements that have, or are likely to have, a current or future material effect on our operations. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We have identified the policies listed below as critical to our business and the understanding of our results of operations. For a detailed discussion of the application of these and other accounting policies, see Note 3 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K. The preparation of consolidated financial statements in conformity with GAAP requires management to 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, collectability of accounts receivable, contingencies, litigation, income taxes, and other liabilities. Management based its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the consolidated financial statements. REVENUE RECOGNITION The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered. We derive our revenues from four segments: EOR, Staffing Solutions, Direct Hire and Video and Multimedia Production. Revenues are recognized when promised services are delivered to a client, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Revenues as presented in the consolidated statements of operations represent services rendered to client less variable consideration, such as sales adjustments and allowances. Reimbursements often related to out-of-pocket expenses, and equipment leasing are also included in revenues, and equivalent amounts of reimbursable expenses and leased costs are included in cost of services. We record revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. We have concluded that gross reporting is appropriate because we (i) have the risk of identifying and hiring qualified workers, (ii) have the discretion to select the workers and establish their price and duties and (iii) we bear the risk for services that are not fully paid for by client. Temporary staffing revenues are accounted for as a single performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of the Company’s performance on an hourly basis. The contracts stipulate weekly billing, and the Company has elected the “as invoiced” practical expedient to recognize revenue based on the hours incurred at the contractual rate as we have the right to payment in an amount that corresponds directly with the value of performance completed to date. Direct Hire revenue is recognized on the date the candidate’s full-time employment with the customer has commenced. The customer is invoiced on the start date, and the contract stipulates payment due under varying terms, typically 30 days. The contract with the customer stipulates a guarantee period whereby the Company will replace the candidate free of charge if the employee is terminated within the first 90-day period. As such, the Company’s performance obligations are satisfied upon commencement of employment, at which point control is transferred to the customer. Allowances, recorded as a liability, are established to estimate these losses. Fees to clients are generally calculated as a percentage of the new worker’s annual compensation. No fees for Direct Hire services are charged to employment candidates. Video and Multimedia Production revenues from contracts with clients are recognized in the amount to which we have a right to invoice when the services are rendered by our field talent. RECENT ACCOUNTING PRONOUNCEMENTS For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 3 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.