RELIABILITY INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Report of Independent Registered Public Accounting Firms PCAOB ID NO: 820 40 Audited Consolidated Financial Statements of Reliability, Incorporated. Consolidated Balance Sheets as of December 31, 2024 and 2023 42 Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 43 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024 and 2023 44 Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023 45 Notes to Consolidated Financial Statements 47 39 18012 Sky Park Circle, Suite 200 Irvine, California 92614 tel 949-852-1600 fax 949-852-1606 www.rjicpas.com REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Reliability Incorporated: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Reliability Incorporated and Subsidiary (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Security and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. 40 Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the Audit Committee of the Board of Directors and that: (1) related to accounts or disclosures that are material to the consolidated financial statements and (2) involve challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a while, and we are not, by communicated the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they related. Recoverability of Notes Receivable from Related Parties As discussed in Notes 9 and 11 to the consolidated financial statements, the Company has significant related party transactions and arrangements with the majority shareholders of the Company and other companies owned by the majority shareholders. In addition to holding several receivable agreements, including notes receivable with these related parties, in 2022, an arbitrator issued an award in favor of the Company against the majority shareholder group. We determined the recoverability of the related party notes receivable (recoverability of RP notes) as a critical audit matter. Auditor judgment was involved in assessing the sufficiency of the procedures performed to assess the collectability of the notes receivable from related parties. The following are the primary procedures we performed to address this critical audit matter. We performed the following procedures to evaluate the recoverability of the RP notes by the Company: ● Send and inspected questionnaires from the Company’s officers; ● Evaluated and reviewed the Company’s reconciliation of the notes receivable from related parties; ● Read the Company’s minutes from meetings of the Board of Directors; ● Reviewed public filings, external news and research sources for informational related to transactions between the Company and related parties; ● Confirmed with the Company’s management and its outside counsel as to the award granted by the arbitrator; and ● Reviewed management’s assessment of the collectability of these balances due from related parties. We have served as the Company’s auditor since 2009. Ramirez Jimenez International CPAs Irvine, California March 31, 2025 41 RELIABILITY INCORPORATED AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (amounts in thousands, except per share data) 2024 2023 December 31, 2024 2023 ASSETS CURRENT ASSETS Cash and cash equivalents $ 522 $ 822 Trade receivables, net of allowance for credit losses 4,785 2,993 Other receivables 4 10 Notes receivable from related parties 5,847 5,501 Prepaid expenses and other current assets 336 442 Total current assets 11,494 9,768 Other intangible assets, net 2 3 Property, plant and equipment, net 60 15 Total assets $ 11,556 $ 9,786 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Factoring liability $ 2,375 $ 174 Accounts payable 734 548 Accrued expenses 288 290 Accrued payroll 568 637 Deferred revenue 207 206 Note payable, current 26 - Total current liabilities 4,198 1,855 LONG TERM LIABILITIES Note payable, net of current 21 - Total long-term liabilities 21 - Total liabilities 4,219 1,855 Commitment and contingencies (Note 9) - - STOCKHOLDERS’ EQUITY Common stock, without par value, 300,000,000 shares authorized, 300,000,000 issued and outstanding as of December 31, 2024 and 2023 - Additional paid-in capital 750 750 Retained earnings 6,587 7,181 Total stockholders’ equity 7,337 7,931 Total liabilities and stockholders’ equity $ 11,556 $ 9,786 The accompanying notes to consolidated financial statements are an integral part of these financial statements. 42 RELIABILITY INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) 2024 2023 For the Years Ended December 31, 2024 2023 Revenue earned Service revenue $ 23,982 $ 21,451 Cost of revenue Cost of revenue 20,790 18,412 Gross profit 3,192 3,039 Selling, general and administrative expenses 3,899 3,788 Operating loss ( 707 ) ( 749 ) Other income (expense): Interest income from related parties 452 269 Interest income 18 25 Interest expense ( 108 ) ( 92 ) Other income (expense) ( 249 ) ( 179 ) Loss before income tax expense ( 594 ) ( 726 ) Income tax benefit (expense) - ( 14 ) Net loss $ ( 594 ) $ ( 740 ) Net loss per share: Basic $ 0.00 $ 0.00 Diluted $ 0.00 $ 0.00 Share used in per share computation: Basic 300,000,000 300,000,000 Diluted 300,000,000 300,000,000 The accompanying notes to consolidated financial statements are an integral part of these financial statements. 43 RELIABILITY INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS’ EQUITY For the years ended December 31, 2024 and 2023 (amounts in thousands, except per share data) Shares Amount Capital Earnings Equity Additional Common Stock Paid-in Retained Total Shares Amount Capital Earnings Equity Balance, January 1, 2023 300,000,000 $ - $ 750 $ 7,921 $ 8,671 Net loss - - ( 740 ) $ ( 740 ) Balance, December 31, 2023 300,000,000 $ - $ 750 $ 7,181 $ 7,931 Balance 300,000,000 $ - $ 750 $ 7,181 $ 7,931 Net loss $ - $ - $ ( 594 ) $ ( 594 ) Balance, December 31, 2024 300,000,000 $ - $ 750 $ 6,587 $ 7,337 Balance 300,000,000 $ - $ 750 $ 6,587 $ 7,337 The accompanying notes to consolidated financial statements are an integral part of these financial statements. 44 RELIABILITY INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) 2024 2023 For the Years Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 594 ) $ ( 740 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 23 18 Accrued interest ( 452 ) ( 284 ) Changes in operating assets and liabilities: Trade receivables ( 1,786 ) 3,344 Retention credit receivable - 1,209 Prepaid expenses and other current assets 106 ( 13 ) Accounts payable 186 ( 149 ) Accrued payroll ( 69 ) ( 344 ) Accrued expenses ( 3 ) ( 49 ) Deferred revenue 2 30 Income taxes payable - ( 6 ) Net cash (used in) provided by operating activities $ ( 2,587 ) $ 3,016 Cash flows from investing activities: Purchase of fixed assets ( 68 ) ( 9 ) Net cash used in investing activities $ ( 68 ) ( 9 ) Cash flows from financing activities: Proceeds from the factoring facility 9,132 3,768 Repayments to the factoring facility ( 6,930 ) ( 6,214 ) Proceeds from note payable 51 - Repayment of note payable ( 4 ) - Advances to related parties - 34 Repayment of notes receivable from related parties 106 - Net cash provided by (used in) financing activities $ 2,355 ( 2,412 ) Net (decrease) increase in cash and cash equivalents ( 300 ) 595 Cash and cash equivalents, beginning of year 822 227 Cash and cash equivalents, end of year $ 522 $ 822 The accompanying notes to consolidated financial statements are an integral part of these financial statements. 45 RELIABILITY INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS, continued (amounts in thousands) Supplemental disclosures of cash flow information: 2024 2023 For the years ended December 31, Supplemental disclosures of cash flow information: 2024 2023 Cash paid during the year for: Interest $ 108 $ 92 Income taxes (received) paid $ - $ 20 The accompanying notes to consolidated financial statements are an integral part of these financial statements. 46 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) NOTE 1 - NATURE OF OPERATIONS Reliability Incorporated operates, along with its wholly owned subsidiary, The Maslow Media Group, Inc. (“MMG” or “Maslow”), (collectively, “Reliability” or the “Company”) as a workforce management solutions company. MMG has for over 30 years focused primarily on the media industry. That changed in late 2019 when MMG began providing staffing services in the area of IT. Now MMG fills roles in a variety of business functional areas, including administrative, IT, accounting and finance, HR, and sales. In servicing its clients, Reliability provides a variety of staffing services which include employer of record, temporary staffing services, and direct hire, primarily within the United States of America in four industry segments: Employer of Record (“EOR”), Recruiting and Staffing, Video and Multimedia Production resources, and Direct Hire. EOR, which is a unique workforce management solution, represented 83.1 % of our revenue in 2024. Our Staffing segment provides skilled field talent on a nationwide basis for client partner projects. Video Production, for one, involves assembling and providing crews for special projects that can last anywhere from a week to 6 months. In 2021, MMG began building its direct hire business as a separate business segment, which added $ 95 and $ 199 in revenue and $ 90 and $ 181 in gross profit in 2024 and 2023 respectively. NOTE 2 - MANAGEMENT’S PLAN Although the Company has experienced net losses after taxes in the years ended December 31, 2024 and 2023 of $ 594 and $ 740 , respectively, management believes it has the ability to continue as a going concern and meet its financial obligation as they become due in 2025 and beyond. The factors impacting this view include, but are not limited to, the following: ● Cash flow forecast showing sufficient cash and working capital 52 weeks from March 31, 2025; ● The expected reductions in continuing legal fees in 2025 given the Company has collectible judgments which the Receiver is pursuing; ● An expectation that the notes receivable from related parties will be remunerated in cash and or stock and that stock will provide capital market access; ● Expected progress in sales, newer agreements that will begin fulfillment, and certain larger clients who increased sales in 2024 and are expected to continue growth trends in media activity for 2025; ● $ 1,323 in new account revenue in 2024 with the expectation of additional new revenue in 2025; ● The Company has additional availability to use its factoring line to extend borrowing of up to 93 % of unfactored invoices which, as of March 27, 2025, was $ 1,707 ; ● The business can adapt by trimming personnel and software to have costs more aligned to revenues if need be. As a result of the foregoing, the Company believes that it has sufficient cash to meet its financial obligations for the next 12 months and beyond as they become due. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Company’s consolidated financial statements reflect the financial position and operating results of Reliability, including its wholly owned subsidiary, MMG. All intercompany transactions and balances have been eliminated in consolidation. All dollar amounts presented in this Form 10-K, unless otherwise specified, are expressed in thousands. 47 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) Management Estimates The consolidated financial statements and related disclosures are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The Company must make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to revenue recognition, allowances for credit losses, and recoverability of notes receivable, useful lives for depreciation and amortization, loss contingencies, and the valuation allowances for deferred income taxes. Actual results may be materially different from those estimated. In making its estimates, the Company considers the current economic and legislative environment. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Concentrations For the year ended December 31, 2024, Clients A, B and C each accounted for 10% or more of the total revenue, with their respective contributions approximately 26.9 %, 22.6 % and 14.1 %, or 63.6 % combined. For the year ended December 31, 2023, Clients A and B contributed 10% or more of the total revenue, with their respective share approximately 25.1 % and 15.1 % or 40.1 % combined. As of December 31, 2024, Clients A, B, C and D represented approximately 23.5 %, 48.7 %, 0 % and 13 % of the total accounts receivable outstanding, respectively. As of December 31, 2023, Clients A, B and E represented approximately 19.9 %, 42.9 %, and 12.3 % of the total accounts receivable outstanding, respectively. Financial instruments, which potentially subject the Company to concentrations of credit risk, are primarily cash, notes receivable from related parties and accounts receivable. The Company performs continuing credit evaluations of its customers and does not require collateral. The Company has not experienced significant losses related to receivables. The Company at times may have cash in excess of the Federal Deposit Insurance Corporation (“FDIC”) limit. The Company has not experienced losses on these accounts and management believe the Company is not exposed to losses on such accounts. Approximately 15% of our field talent are represented by a labor union. Accounts Receivable, Contract Assets, and Contract Liabilities (Deferred Revenue) Receivables represent both trade receivables from customers in relation to fees for the Company’s services and unpaid amounts for benefit services provided by third-party vendors, such as healthcare providers for which the Company records a receivable for funding until the payment is received from the customer and a corresponding customer obligations liability until the Company disburses the balances to the vendors. 48 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) The Company provides an allowance for credit losses by specifically identifying accounts with a risk of collectability and providing an estimate of the loss exposure. Management considers all contract receivables as of December 31, 2024 and 2023 to be fully collectible, therefore an allowance for credit losses is not provided for. The Company records accounts receivable when its right to consideration becomes unconditional. Contract assets primarily relate to the Company’s rights to consideration for services provided that they are conditional on satisfaction of future performance obligations. The Company holds customer deposits of certain customers related to its EOR business to minimize cash flow impact and reduces risks of uncollectible trade receivables. The Company records contract liabilities (deferred revenue) when payments are made or due prior to the related performance obligations being satisfied. The Company does not have any material contract assets or long-term contract liabilities. As of December 31, 2024 and 2023, the Company’s deferred revenue totaled $ 207 and $ 206 , respectively. Fair Value Measurements The Company measures fair value based on the price that the Company would receive upon selling an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Various inputs are used in determining the fair value of assets or liabilities. Inputs are classified into a three-tier hierarchy, summarized as follows: ● Level 1 – Quoted prices in active markets for identical assets or liabilities; ● Level 2 – Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the assets or liabilities; ● Level 3 – Significant unobservable inputs for the assets or liabilities. When Level 1 inputs are not available, the Company measures fair value using valuation techniques that maximize the use of relevant observable inputs (Level 2) and minimizes the use of unobservable inputs (Level 3).The carrying amounts reported as of December 31, 2024 and 2023 for cash and cash equivalents, trade receivables, prepaid expenses and other current assets, accounts payable and accrued expenses, and factoring liability approximate their fair values due to the short-term nature of these instruments or are based on interest rates available to the Company that are comparable to current market rates. It is not practicable to estimate the fair value of the notes receivable from related parties due to their related party nature. Property and Equipment Property and equipment are stated at cost and are depreciated using primarily the straight-line method over the following estimated useful lives: furniture, fixtures, and computer equipment — three to seven years ; leasehold improvements — over the shorter of the estimated useful life of asset or the lease term. Expenditures for renewals and betterments are capitalized whereas expenditures for repairs and maintenance are charged to income as incurred. Upon sale or disposition of property and equipment, the difference between the unamortized cost and the proceeds is recorded as either a gain or a loss. Depreciation and amortization expense for the years ended December 31, 2024 and 2023 totaled $ 23 and $ 18 , respectively. 49 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) Long-Lived Assets The Company reviews its long-lived assets, primarily fixed assets and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily at the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. The Company did not record an impairment expense for the years ended December 31, 2024 and 2023. Other Intangible Assets The Company has intangible assets with finite lives. Intangible assets with finite useful lives were amortized over their respective estimated useful lives, ranging from three to ten years , based on a pattern in which the economic benefit of the respective intangible asset is realized. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligation(s) in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation. The Company derives its revenues from four segments: EOR, Recruiting and Staffing, Direct Hire and Video and Multimedia Production. Although Direct Hire is within the Recruiting and Staffing domain, we consider it as a separate business segment. The Company provides temporary staffing and Direct Hire services. Revenues are recognized when promised services are delivered to the client, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues as presented in the consolidated statements of operations represent services rendered to clients, less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, and media equipment rentals are also included in revenues, and the related amounts of reimbursable expenses are included in cost of revenue. Temporary staffing revenues - Field talent revenues from contracts with clients are recognized in the amount to which the Company has the right to invoice when the services are rendered by the Company’s field talent. Direct Hire staffing revenues - Direct Hire staffing revenues are recognized when employment candidates start their permanent employment. MMG estimates the effect of Direct Hire candidates who do not remain with its client through the guarantee period (generally 90 days) based on historical experience. 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. Refer to Note 13 for disaggregated revenues by segment. Payment terms in our contracts vary by the type and location of our client partner and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of December 31, 2024. There were no revenues recognized during the years ended December 31, 2024 and 2023 related to performance obligations satisfied or partially satisfied in previous periods. There are no contract costs capitalized. The Company did no t recognize any contract impairments during the years ended December 31, 2024 and 2023. Transfers of Financial Assets Transfers of financial assets that do not qualify for sale accounting are reported as collateralized borrowings. Accordingly, the related assets remain on the Company’s balance sheet and continue to be reported and accounted for as if the transfer had not occurred. Cash proceeds from these transfers are reported as liabilities, with attributable interest expense recognized over the life of the related transactions. 50 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) Advertising The Company recognizes marketing and promotion expense in selling, general and administrative expenses as the services are incurred. Total marketing and promotion expenses for the years ended December 31, 2024 and 2023 as $ 65 and $ 51 , respectively. Earnings (Loss) Per Share Basic earnings (loss) per common share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. 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 Company. Income Taxes The Company accounts for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and net operating loss and tax credit carry forwards, using enacted tax rates and laws that are expected to be in effect when the differences reverse. A valuation allowance is recorded against deferred tax assets in these cases when management does not believe that the realization is more likely than not. While management believes that its judgements and estimates regarding deferred tax assets and liabilities are appropriate, significant differences in actual results may materially affect the Company’s future financial results. The Company recognizes any uncertain income tax positions at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than 50% likelihood of being sustained. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2024 and 2023, the Company did not record any accruals for interest and penalties. The Company does not foresee material changes to its uncertain tax positions within the next twelve months. The Company’s tax years are subject to examination for 2022 and forward for U.S. Federal tax purposes and for 2021 and forward for state tax purposes. Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures. The FASB amended the guidance in ASC 280, Segment Reporting (“ASC 280”), to require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The guidance is applied retrospectively to all periods presented in financial statements, unless it is impracticable. This new guidance is effective for public business entities for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. The Company adopted this new standard effective January 1, 2024. See Note 13, Segment Information, for disclosures related to the adoption of ASU 2023-07. 51 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) In November 2024, the FASB issued ASU No. 2024-03 , Income Statement - Reporting Comprehensive Income - Expense Recognition Disclosures . This ASU will require entities to provide enhanced disclosures related to certain expense categories included in income statement captions. The ASU aims to increase transparency and provide investors with more detailed information about the nature of expenses reported on the face of the income statement. The new standard does not change the requirements for the presentation of expenses in the face of the income statement. Under this ASU, entities are required to disaggregate, in a tabular format, expense captions presented on the face of the income statement — excluding earnings or losses from equity method investments — if they include any of the following expense categories: purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation or depletion. For any remaining items within each relevant expense caption, entities must provide a qualitative description of the nature of those expenses. The new ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on the related disclosures. In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures . This ASU does not change accounting for income taxes but requires new disclosures focusing on two areas, the effective rate reconciliation and taxes paid. This new standard is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on the related disclosures. The Company does not believe any other recently issued but not yet effective accounting pronouncement, if adopted, would have a material effect on its present or future consolidated financial statements. NOTE 4 – TRADE RECEIVABLES Contract receivables for the years ended December 31, 2024 and 2023 consist of the following: SCHEDULE OF CONTRACT RECEIVABLES 2024 2023 Accounts receivable, unfactored $ 2,313 $ 2,819 Unbilled receivables 97 - Accounts receivable, factored 2,375 174 Total $ 4,785 $ 2,993 All the net trade receivables are pledged as collateral on a loan agreement. The unbilled receivables relate to services that were performed, and the related revenue was recognized but the Company has not invoiced for these services as of December 31, 2024. NOTE 5 – PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment for the years ended December 31, 2024 and 2023 consist of the following: SUMMARY OF PROPERTY, PLANT AND EQUIPMENT 2024 2023 Office equipment $ 76 $ 60 Computer software 160 108 Property, plant and equipment, gross 236 168 Accumulated depreciation ( 176 ) ( 153 ) Property, plant and equipment, net $ 60 $ 15 52 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) NOTE 6 - ACCRUED EXPENSES Accrued expenses for the years ended December 31, 2024 and 2023 consist of the following: SUMMARY OF ACCRUED EXPENSES 2024 2023 Accrued vendor costs $ 155 $ 152 Financed insurance payable 111 127 Other 22 11 Accrued expenses $ 288 $ 290 NOTE 7 - INCOME TAXES Income tax expense (benefit) for the years ended December 31, 2024 and 2023 are comprised of the following: SUMMARY OF INCOME TAX EXPENSE 2024 2023 Current federal income tax $ - $ - Current state income tax - 14 Deferred income tax (benefit) - - Income tax expense (benefit) $ - $ 14 Significant components of the Company’s deferred income tax assets (liabilities) are as follows at SUMMARY OF DEFERRED INCOME TAX ASSETS (LIABILITIES) 2024 2023 December 31, 2024 2023 Deferred tax assets (liabilities): Employee accruals $ 39 $ 97 Cash to accrual - - Accrued workers’ compensation and other 1 3 State deduction - - Sec. 163(j) interest limitation - - Federal and State net operating loss carry forwards 605 401 Other 1 1 Deferred tax liabilities: Intangibles 12 13 Fixed assets ( 5 ) ( 5 ) Deferred income taxes, net 653 510 Valuation allowance ( 653 ) ( 510 ) Deferred tax assets (liabilities) $ - $ - The income tax provision, reconciled to the tax computed at the statutory federal rate, is as follows: 53 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) SCHEDULE OF INCOME TAX PROVISION, RECONCILED TO TAX COMPUTED AT STATUTORY FEDERAL RATE December 31, 2024 2023 Tax expense at federal statutory rate $ ( 125 ) 21.0 % $ ( 147 ) 21.0 % State income taxes, net ( 27 ) 4.6 % ( 33 ) 4.8 % Permanent Differences 1 - 0.1 % 2 - 0.2 % Effect of deferred rate change 6 - 1.1 % 15 - 2.2 % Historical Adjustments 2 - 0.3 % 28 - 4.0 % Valuation allowance 143 - 24.1 % 135 - 19.4 % Other, net - 0.0 % 14 2.0 % Income tax expense $ - 0.0 % $ 14 2.0 % NOTE 8 – DEBT Factoring Facility Gulf Coast Bank and Trust On November 4, 2016, the Company entered into a factoring and security agreement with Triumph Business Capital (“Triumph”), which was amended in January 2020. The current agreement has an advance rate of 15 basis points, and the interest rate is prime plus 2%. The amount of an invoice eligible for sale is 93%. The agreement is on month-to-month terms. On August 24, 2023, we were notified by that our factoring arrangement had been sold to Gulf Coast Bank and Trust (“Gulf”), by Triumph who decided to sell its non-transportation portfolio. The transition took place in August 2023 with new financing coming from Gulf. The Company continues to be obligated to meet certain covenants with respect to invoicing and reserve account balance. In accordance with the agreement, a reserve amount is required for the total unpaid balance of all purchased accounts multiplied by a percentage equal to the difference between one hundred percent and the advanced rate percentage. As of December 31, 2024, the required amount was 10 %. Any excess of the reserve amount is paid to the Company on a weekly basis, as requested. If a reserve shortfall exists for a period of ten days, the Company is required to make payment to the financial institution for the shortage. Accounts receivables were sold with full recourse. Proceeds from the sale of receivables were $ 9,132 and $ 3,768 for the years ended December 31, 2024 and 2023, respectively. Repayments totaled $ 6,930 and $ 6,214 for the years ending December 31, 2024 and 2023, respectively. Thus, the total outstanding balance under the recourse contract was $ 2,375 and $ 174 as of December 31, 2024 and 2023, respectively. The Factoring Facility is collateralized by substantially all the assets of the Company. In the event of a default, the Factor may demand that the Company repurchase the receivable or debit the reserve account. Total finance line fees for the years ended December 31, 2024 and 2023 totaled $ 108 and $ 92 , respectively. and are included in other income (expense) in the accompanying consolidated statement of operations. NOTE 9 – COMMITMENTS AND CONTINGENCIES From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. Except as set forth below, we are not aware of any such legal proceedings or claims against the Company. 54 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) A series of legal actions and hearings took place starting in March of 2020 with the Vivos Group over Merger agreement violations and Vivos Group debt obligations. Arbitration was agreed to in the fall of 2021 by both the Vivos Group and MMG with the proceedings commencing in February 2022. On August 31, 2022, the arbitrator issued the Award with the Company and MMG prevailing on their claims. The awards included citing of fraud damages. Supplemental awards were subsequently issued on May 17, 2023, October 10, 2023, and finally on October 27, 2023. Summarily, MMG was awarded the totals of all notes the Vivos Group had with MMG for its borrowings, the contracted interest, attorneys’ fees and expenses of $ 1,209 , and a contract damage of $ 1,000 to be satisfied by the transfer of their shares of the Company Common Stock to the Company equal in value to $ 1,000 . The aggregate amount of the Awards totaled $ 7,710 . The May 17, 2023 award also appointed a Receiver whose primary function is to collect the contract and fraud damages, including costs, expenses, and fees provided in the awards. On December 29, 2023, the Circuit Court for Montgomery County, Maryland signed orders entering all three arbitration awards as judgments in Reliability’s case against the Vivos Group. These orders became final on January 29, 2024, when the appeal period expired for the defendants. The judgments are good for 12 years and can be enrolled in other states. Reliability has collectible judgments which the Receiver has been eligible to pursue. Sometime in March 2025 MMG expects the Receiver to make a recommendation to the arbitrator. NOTE 10 - EQUITY The Company’s authorized capital stock consists of 300,000,000 shares of common stock with no par value. All authorized shares of Company Common Stock are issued and outstanding. NOTE 11 - RELATED PARTY TRANSACTIONS Stock Purchase Agreement On November 9, 2016, Vivos Holdings, LLC, the former owner of MMG, acquired 100 % of MMG through a stock acquisition exchange for a purchase price of $ 1,750 , of which $ 1,400 was paid at settlement with proceeds from MMG. The Vivos Debtors subsequently entered into a promissory note receivable with MMG for the full stock purchase price. No payment has ever been made against this note and between 2018 to present and there has been $ 2,503 in additional borrowings. Related Party Notes Receivable The Company has several notes receivable from related parties. Prior to the Merger, Vivos Holdings collaborated on a share swap of Maslow for other Vivos companies with individuals who included, but were not limited to, Dr. Doki, Shirisha Janumpally (“Mrs. Janumpally”), wife of Dr. Doki, Kalyan Pathuri (“Mr. Pathuri”) husband of Silvija Valleru, Igly Trust, and Judos Trust. These parties also have common ownership combinations in a number of other entities [Vivos Holdings, LLC. Vivos Real Estate Holdings, LLC (“VREH”), Vivos Holdings, Inc., Vivos Group, Vivos Acquisitions, LLC., and Federal Systems, LLC], which are collectively referred to as the “Vivos Group.” For the year ended December 31, 2024, the Company recorded a change in estimate based on the advice of MMG counsel, whose interpretation of the award led to MMG’s recalculation of accrued interest at a lower interest rate from August 31, 2022 to December 31, 2024, resulting in an approximate $ 132 reversal in interest. The table below is a summary of Vivos Group related party notes receivable which as of December 31, 2024 total $ 5,847 . 55 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) SCHEDULE OF RELATED PARTY NOTES RECEIVABLE Note Description Acquisition Loan to Vivos, LLC Interco Loan to Vivos Real Estate, LLC Tax Note Total Notes Receivable Origination date November 9, 2016 November 15, 2017 September 15, 2019 Original borrowed amount $ 1,400 $ 772 $ 750 Balance on December 31, 2021 $ 3,383 $ 812 $ 790 $ 4,985 Additional borrowings 34 - - 34 Accrued interest 167 45 20 232 Balance on December 31, 2022 $ 3,584 $ 857 $ 810 $ 5,251 Repayments ( 19 ) - - ( 19 ) Accrued interest 200 49 20 269 Balance on December 31, 2023 $ 3,765 $ 906 $ 830 $ 5,501 Repayments ( 15 ) ( 91 ) - ( 106 ) Accrued interest 289 82 81 452 Balance on December 31, 2024 $ 4,039 $ 897 $ 911 $ 5,847 Debt Settlement Agreements In June 2023, VREH successfully sold the property at 22 Baltimore Road in Rockville, Maryland, relieving Maslow of any liability related to the building, which MMG had been signed as a guarantor for in 2017 without management’s knowledge. In September 2024, the Company received $ 91 from the bankruptcy proceedings and sale of the building. This amount was applied toward reducing the Vivos Group’s outstanding debt to MMG (see table above). The SWC matter was also resolved with MMG’s portion being $ 10 . Related Party Costs RLBY’s Other Income and Expenses totaling approximately $ 379 in legal fees and settlements included $ 143 for receivership related costs for recovery of the arbitration award and $ 115 for legal fees and settlement of the SWC matter (see Debt Settlement Agreement above). These $ 258 in costs were related to the Vivos Group. Related Party Relationships On October 29, 2019, prior to the Merger, Naveen Doki and Silvija Valleru became beneficial owners of Company Common Stock, equal to approximately 69 % and 17 % of the total number of shares of the Company’s Common Stock outstanding after giving effect to the Merger, respectively. At the present time, the Vivos Group shall not be entitled to vote any of their shares in Reliability at any annual or special meetings of the shareholders. A Receiver is empowered to recover the awards by seizing shares of the Company held by Dr. Naveen Doki and his affiliates, the Vivos Group. Once the judgments in favor of Reliability are satisfied, the restrictions on the rights of the Vivos Group shareholders imposed by the Award shall be lifted. In the summer of 2019, prior to the Merger, MMG entered into a Securities Purchase Agreement with several parties including CEO Nick Tsahalis (“Mr. Tsahalis”), CFO Mark Speck (“Mr. Speck”), both officers and then directors of Maslow and Hawkeye Enterprises (“Hawkeye”) a company owned and controlled by Mr. Speck. The convertible promissory notes signed by Mr. Tsahalis and Mr. Speck afforded them both common shares of Reliability based on the initial principal amounts of $ 100 each. Mr. Tsahalis, Mr. Speck, and Hawkeye also received Warrants to purchase 16,323 , 81,616 , and 81,616 shares, respectively, (on a post-Merger basis) of the Company Common Stock. The term “warrant” herein refers to warrants issued by MMG and assumed by the Company as a result of the Merger. The terms of all Warrants are the same other than as to the number of shares covered thereby. The Warrant may be exercised at any time or from time to time during the period commencing on first business day following the completion of the Qualified Financing (as defined below) and expiring on the fifth annual anniversary thereof (the “Exercise Period”). For purposes herein, a “Qualified Financing” means the issuance by the Company, other than certain excluded issuances of shares of Common Stock, in one transaction or series of related transactions, which transaction(s) result in aggregate gross proceeds actually received by the Company of at least $ 5,000 . The exercise price per full share of the Company Common Stock shall be 120 % of the average sale price of the Company Common Stock across all transactions constituting a part of the Qualified Financing. Convertible note warrants were not valued and included as liability on balance sheet because of uncertainty around their pricing, value, and low probability at this juncture in receiving the $ 5,000 trigger. The five-year eligibility for all holders of these Warrants expired in October 2024. 56 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands) NOTE 12 - EMPLOYEE BENEFIT PLAN The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible full-time employees. The 401(k) Plan allows employees to make contributions subject to applicable statutory limitations. The Company currently does not match employee contributions. NOTE 13 - BUSINESS SEGMENTS The Company operates within four industry segments: EOR, Recruiting and Staffing, Direct Hire, and Video and Multimedia Production. The EOR segment provides media field talent to a host of large corporate customers in all 50 states. The Recruiting and Staffing segment provides skilled Media and IT field talent on a nationwide basis for customers in a myriad of industries. Direct Hire fulfils direct placement requests by MMG clients for a wide variety of posts, including administrative, media and IT professionals. The Video and Multimedia Production segment provides Script-to-Screen services for corporate, government and non-profit clients, globally. Segment gross profit includes revenue and cost of services only. Currently, the Company is not allocating interest income, interest expense, depreciation expense, other income (expense), income tax benefit (expense) and sales, general, and administrative expenses at the segment level. Our operating segments align with our organizational structure and are regularly reviewed by our Chief Executive Officer (our chief operating decision-maker or “CODM”) to allocate resources and assess performance. We evaluate segments based on revenue and gross profit, which also guide our annual budgeting process. Monthly, our CODM reviews segment revenue and gross profit against the prior year and budget to inform working capital allocation decisions. The measure of segment assets is reported on the consolidated balance sheet as total assets. The following table provides a reconciliation of revenue and gross profit by reportable segment to consolidated results for the years indicated: Gross Profit Performance by Segment SCHEDULE OF GROSS PROFIT PERFORMANCE BY SEGMENT 2024 2023 Business Segment Revenue Gross Profit GM % Business Segment Revenue Gross Profit GM % EOR $ 20,382 $ 2,445 12.0 % EOR $ 17,828 $ 2,179 12.2 % Staffing $ 3,301 $ 617 18.7 % Staffing $ 3,098 $ 611 19.7 % Video Production $ 204 $ 40 19.7 % Video Production $ 326 $ 68 20.9 % Direct Hire $ 95 $ 90 94.4 % Direct Hire $ 199 $ 181 91.0 % Total $ 23,982 $ 3,192 13.3 % Total $ 21,451 $ 3,039 14.2 % NOTE 14- SUBSEQUENT EVENTS The Company has evaluated subsequent events after the balance sheet date of December 31, 2024 through March 31, 2025, the date on which the consolidated financial statements were available to be issued. Based upon this evaluation, management has determined that no material subsequent events have occurred that would require recognition in or disclosures in the accompanying consolidated financial statements. 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.