UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal quarter ended September 30, 2020

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

 

Commission File Number 000-56012

 

 

 

(Exact name of registrant as specified in its charter)

 

Nevada

 

47-2200506

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

12343 Hymeadow Drive, Suite 3-A

Austin, Texas

 

78750

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (512) 407-2623

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐     No ☒

 

State the number of shares of the issuer’s common stock outstanding, as of the latest practicable date: 14,585,000 shares of common stock are issued and outstanding as of November 10, 2020.

 

 

 

 

TABLE OF CONTENTS

  

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited)

 

5

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited)

 

6

 

 

 

 

 

 

 

Notes to the Consolidated Financial Statements (unaudited)

 

6

 

 

 

 

 

 

Item 2

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

 

13

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

25

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

26

 

 

 

 

 

 

Item 1A.

Risk Factors

 

26

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

31

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

31

 

 

 

 

 

 

Item 5.

Other Information

 

31

 

 

 

 

 

 

Item 6.

Exhibits

 

32

 

 

 

2

 

   

PART I – FINANCIAL INFORMATION

   

Item 1. Financial Statements

   

Reliant Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets 

(unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 205,082

 

 

$ 280,680

 

Federal income tax receivable

 

 

416

 

 

 

416

 

House and real estate inventory

 

 

33,448

 

 

 

17,424

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

238,946

 

 

 

298,520

 

 

 

 

 

 

 

 

 

 

Equipment, net of accumulated depreciation of $39,223 and $27,587 as of September 30, 2020 and December 31, 2019, respectively

 

 

42,505

 

 

 

7,339

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 281,451

 

 

$ 305,859

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 166,458

 

 

$ 54,974

 

Contract liabilities

 

 

275,017

 

 

 

96,490

 

Current portion of note payable

 

 

6,807

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

448,282

 

 

 

151,464

 

 

 

 

 

 

 

 

 

 

Long-term note payable, net of current portion

 

 

75,053

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

523,335

 

 

 

151,464

 

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Preferred stock, 5,000,000 shares authorized, $0.001 par value, 0 issued and outstanding as of September 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, 70,000,000 shares authorized, $0.001 par value, 14,585,000 issued and outstanding as of September 30, 2020 and December 31, 2019

 

 

14,585

 

 

 

14,585

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

43,365

 

 

 

43,365

 

Retained earnings (accumulated deficit)

 

 

(299,834 )

 

 

96,445

 

 

 

 

 

 

 

 

 

 

Total Stockholders’ Equity (Deficit)

 

 

(241,884 )

 

 

154,395

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity (Deficit)

 

$ 281,451

 

 

$ 305,859

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
3

Table of Contents

 

Reliant Holdings, Inc. and Subsidiary 

Consolidated Statements of Operations  

(unaudited)  

 

 

 

For the Three Months ended

 

 

For the Nine Months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$ 555,073

 

 

$ 591,891

 

 

$ 1,381,051

 

 

$ 1,310,232

 

Cost of goods sold

 

 

(407,229 )

 

 

(401,284 )

 

 

(974,228 )

 

 

(869,962 )

Gross margin

 

 

147,844

 

 

 

190,607

 

 

 

406,823

 

 

 

440,270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

164,913

 

 

 

110,378

 

 

 

802,262

 

 

 

355,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

(164,913 )

 

 

(110,378 )

 

 

(802,262 )

 

 

(355,036 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) From Operations

 

 

(17,069 )

 

 

80,229

 

 

 

(395,439 )

 

 

85,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income / (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

32

 

 

 

22

 

 

 

73

 

Interest expense

 

 

(320 )

 

 

(127 )

 

 

(862 )

 

 

(388 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other expense

 

 

(320 )

 

 

(95 )

 

 

(840 )

 

 

(315 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(17,389 )

 

 

80,134

 

 

 

(396,279 )

 

 

84,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss)

 

$ (17,389 )

 

$ 80,134

 

 

$ (396,279 )

 

$ 84,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss) Per Share - Basic and Diluted

 

$ (0.00 )

 

$ 0.01

 

 

$ (0.03 )

 

$ 0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

14,585,000

 

 

 

14,585,000

 

 

 

14,585,000

 

 

 

14,585,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
4

Table of Contents

 

Reliant Holdings, Inc. and Subsidiaries  

Consolidated Statements of Stockholders’ Equity (Deficit)  

For the three and nine months ended September 30, 2020 and 2019  

(unaudited)  

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional Paid in

 

 

Retained Earnings (Accumulated

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2019

 

 

 

 

$

 

 

 

14,585,000

 

 

$ 14,585

 

 

$ 43,365

 

 

$ 96,445

 

 

$ 154,395

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(331,838 )

 

 

(331,838 )

Balance March 31, 2020

 

 

 

 

 

 

 

 

14,585,000

 

 

 

14,585

 

 

 

43,365

 

 

 

(235,393 )

 

 

(177,443 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,052 )

 

 

(47,052 )

Balance June 30, 2020

 

 

 

 

 

 

 

 

14,585,000

 

 

 

14,585

 

 

 

43,365

 

 

 

(282,445 )

 

 

(224,495 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,389 )

 

 

(17,389 )

Balance September 30, 2020

 

 

 

 

$

 

 

 

14,585,000

 

 

$ 14,585

 

 

$ 43,365

 

 

$ (299,834 )

 

$ (241,884 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2018

 

 

 

 

$

 

 

 

14,585,000

 

 

$ 14,585

 

 

$ 43,365

 

 

$ (6,565 )

 

$ 51,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,340

 

 

 

6,340

 

Balance March 31, 2019

 

 

 

 

 

 

 

 

14,585,000

 

 

 

14,585

 

 

 

43,365

 

 

 

(225 )

 

 

57,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,555 )

 

 

(1,555 )

Balance June 30, 2019

 

 

 

 

 

 

 

 

14,585,000

 

 

 

14,585

 

 

 

43,365

 

 

 

(1,780 )

 

 

56,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80,134

 

 

 

80,134

 

Balance September 30, 2019

 

 

 

 

$

 

 

 

14,585,000

 

 

$ 14,585

 

 

$ 43,365

 

 

$ 78,354

 

 

$ 136,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

  
5

Table of Contents

  

Reliant Holdings, Inc. and Subsidiary  

Consolidated Statements of Cash Flows   

(unaudited)   

 

 

 

For the Nine Months ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$ (396,279 )

 

$ 84,919

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

11,636

 

 

 

5,081

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Contract assets

 

 

 

 

 

(19,300 )

House and real estate inventory

 

 

(16,024 )

 

 

(17,424 )

Prepaid and other current assets

 

 

 

 

 

1,500

 

Increase (decrease) in contract liabilities

 

 

178,527

 

 

 

(11,627 )

Accounts payable and accrued liabilities

 

 

111,484

 

 

 

40,760

 

 

 

 

 

 

 

 

 

 

Net Cash Provided By (Used In) Operating Activities

 

 

(110,656 )

 

 

83,909

 

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(11,000 )

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Used In Investing Activities

 

 

(11,000 )

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Payments on related party advances

 

 

 

 

 

(5,000 )

Proceeds from notes payable

 

 

51,113

 

 

 

 

Payments on note payable

 

 

(5,055 )

 

 

(13,248 )

 

 

 

 

 

 

 

 

 

Net Cash Provided By (Used In) Financing Activities

 

 

46,058

 

 

 

(18,248 )

 

 

 

 

 

 

 

 

 

Net change in Cash

 

 

(75,598 )

 

 

65,661

 

Cash - Beginning of Period

 

 

280,680

 

 

 

181,093

 

Cash - End of Period

 

$ 205,082

 

 

$ 246,754

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Interest paid

 

$ 783

 

 

$ 368

 

Income taxes paid

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Non-cash Disclosures

 

 

 

 

 

 

 

 

Purchase of equipment with note payable

 

$ 35,802

 

 

$

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
6

Table of Contents

    

Reliant Holdings, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

For the three and nine months ended September 30, 2020 and 2019

(unaudited)

  

Note 1. The Company and Summary of Significant Accounting Policies

   

The Company

 

Reliant Holdings, Inc. (the “Company”) was formed as a Nevada corporation on May 19, 2014. On May 23, 2014, Reliant Holdings, Inc., along with Reliant Pools, Inc., formerly Reliant Pools, G.P., which was formed in September 2013 (“Reliant Pools”) and the shareholders of Reliant Pools, entered into an Agreement for the Exchange of common stock whereby Reliant Pools, Inc. became a wholly-owned subsidiary of Reliant Holdings, Inc. Reliant Holdings, Inc. designs, and installs swimming pools. On October 10, 2018, the Company incorporated a new wholly-owned subsidiary in Texas, Reliant Custom Homes, Inc. During the third quarter of 2019, the Company purchased land on which it intends to construct a custom home. The Company is headquartered in Austin, Texas.

 

Basis of Presentation

   

The financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

The consolidated financial statements and related disclosures as of September 30, 2020 are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These unaudited financial statements should be read in conjunction with the audited financial statements of the Company for the years ended December 31, 2019 and 2018 included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 30, 2020. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.

 

Revenue Recognition – Home and Land

 

Home sale revenues - Home sale revenues and related profit are generally recognized when title to and possession of the home are transferred to the buyer at the home closing date. Our performance obligation to deliver the agreed-upon home is generally satisfied at the home closing date. Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash. Contract liabilities, include customer deposit liabilities related to homes sold but not yet delivered to buyers, totaled $0 at September 30, 2020 and December 31, 2019, related to Home and Land revenue. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. 

  

Land sale revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied.

  

Home and Real Estate Inventory

 

Inventory is stated at cost unless the carrying value is determined to not be recoverable, in which case the affected inventory is written down to fair value. Cost includes land acquisition, land development, and home construction costs, including interest, real estate taxes, and certain direct and indirect overhead costs related to development and construction. The specific identification method is used to accumulate home construction costs.

 

 
7

Table of Contents

 

We capitalize interest cost into homebuilding inventories. Interest expense is allocated over the period based on the timing of home closings.

 

Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable to the home. Sales commissions are classified within selling, general, and administrative expenses. The construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid.

 

We assess the recoverability of our land inventory in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment.” We review our home and real estate inventory for indicators of impairment by property during each reporting period. If indicators of impairment are present for a property, generally, an undiscounted cash flow analysis is prepared in order to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, the assets are potentially impaired, requiring a fair value analysis. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. However, fair value can be determined through other methods, such as appraisals, contractual purchase offers, and other third-party opinions of value. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the nine months ended September 30, 2020 and 2019, we recorded $0 of impairment charges.

 

COVID-19

 

A novel strain of coronavirus (“COVID-19”) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations, workforce and markets served. While the Company has to date, not suffered any negative effects of COVID-19, the governmental response thereto, or any declines in demand for the Company’s services, the full extent of the COVID-19 outbreak and the ultimate impact on the Company’s operations is uncertain. A prolonged disruption could have a material adverse impact on financial results and business operations of the Company.

 

Note 2. Accounts Receivable

  

Accounts receivable consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Contract receivables

 

$ 3,000

 

 

$ 3,000

 

Less: Allowance for doubtful accounts

 

 

(3,000 )

 

 

(3,000 )

 

 

$ -

 

 

$ -

 

 

The Company recognized no bad debt expense during the nine months ended September 30, 2020 and 2019.

 

 
8

Table of Contents

 

Note 3. Contracts in Process

 

The net asset (liability) position for contracts in process consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Costs on uncompleted contracts

 

$ 203,021

 

 

$ 244,557

 

Estimated earnings

 

 

94,764

 

 

 

120,453

 

 

 

 

297,785

 

 

 

365,010

 

Less: Progress billings

 

 

572,802

 

 

 

461,500

 

 

 

$ (275,017 )

 

$ (96,490 )

   

The net asset (liability) position for contracts in process is included in the accompanying consolidated balance sheets as follows:

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

 

 

$

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

 

(275,017 )

 

 

(96,490 )

 

 

$ (275,017 )

 

$ (96,490 )

 

Note 4. Concentration of Risk

 

The Company had gross revenue of $1,381,051 and $1,310,232 for the nine months ended September 30, 2020 and 2019, respectively.

 

The Company had five customers representing more than 10% of gross revenue, and a combined 56% of revenue for the nine months ended September 30, 2020.  The Company had four customers representing more than 10% of gross revenue, and a combined 48% of revenue for the nine months ended September 30, 2019.

 

Note 5. Equity

 

From January 2016 to September 2016, the Company sold 885,000 shares of restricted common stock for $44,250, or $0.05 per share in a private offering pursuant to a private placement memorandum. Purchasers in the offering included Lilia Chavez, the mother of Michael Chavez, the Company’s then President and then sole director (10,000 shares for $500), Alexander Spohn, the adult son of Becky Spohn, the Company’s then Controller (5,000 shares for $250), and Phyllis Laws, the mother of Becky Spohn, the Company’s then Controller (5,000 shares for $250).

 

In September 2016, the Company discovered that the investors in the January 2016 to September 2016 offering may not have been provided all of the information and materials (including current audited financial statements), as is required under the Securities Act of 1933, as amended (the “Securities Act”) in order to claim an exemption from registration pursuant to Rule 506(b) of the Securities Act. The Company believes that all such transactions still complied with, and were exempt from registration under Section 4(a)(2) of the Securities Act because the recipients acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof; the securities were offered without any general solicitation by the Company or the Company’s representatives; no underwriters or agents were involved in the foregoing issuances and the Company paid no underwriting discounts or commissions; the securities sold are subject to transfer restrictions, and the certificates evidencing the securities (or book entry issuances) contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom; and the securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

 

 
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Nevertheless, based on the above, the Company offered the January 2016 to September 2016 purchasers of the Company’s common stock the right to rescind their previous common stock acquisitions and receive, in exchange for any shares relinquished to the Company, a payment equal to their original purchase price plus interest at the applicable statutory rate in the state in which they reside. The rescission offer expired at 5:00 pm (CST) on October 26, 2016. None of the prior purchasers opted to rescind their prior purchases in connection with the rescission offer.

 

During the first quarter of fiscal 2017, the Company learned that in 2009, Michael Chavez, the former President and former sole director, was barred from association with any FINRA member in any capability. Mr. Chavez similarly became aware of the FINRA bar at the same time. Pursuant to Rule 506(d), Rule 506 of the Securities Act, is not available for a sale of securities if among other persons, any director or executive officer of an issuer has been subject to certain disqualifying events after September 23, 2013, including suspension or expulsion from membership in a self-regulatory organization (SRO), such as FINRA. However, in the event the disqualifying event occurred prior to September 23, 2013, the issuer is not prohibited from relying on Rule 506, provided that pursuant to Rule 506(e) of the Securities Act, an issuer is required to furnish to each purchaser, a reasonable time prior to sale, a description in writing of any matters that would have triggered disqualification under Rule 506(d)(1), but occurred before September 23, 2013.

 

As Mr. Chavez’s FINRA bar constituted a disqualifying event under Rule 506(d), the Company was required to furnish to each purchaser of shares of the Company, a reasonable time prior to sale, a description in writing of such event. The Company did not do that, because as described above, the Company and Mr. Chavez only became aware of the FINRA bar after the close of the offering. Notwithstanding the fact that the Company was not aware of Mr. Chavez’s FINRA bar, the Company determined that the failure to provide such information may prohibit the Company from relying on a Rule 506 exemption for the prior issuances and sales of shares. The Company believes that all such transactions still complied with, and were exempt from registration under Section 4(a)(2) of the Securities Act, because the recipients acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof; the securities were offered without any general solicitation by us or the Company’s representatives; no underwriters or agents were involved in the foregoing issuances and the Company paid no underwriting discounts or commissions, the securities sold/issued were subject to transfer restrictions, and the certificates evidencing the securities (or book entry issuances) contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom; and the securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

 

Nevertheless, management determined that the Company would offer rescission to all of its stockholders in April 2017. In connection therewith, in April 2017, the Company offered every stockholder of the Company’s common stock the right to rescind their previous purchases and acquisitions and to receive, in exchange for any shares relinquished to us, a payment equal to their original purchase price or consideration provided, plus interest at the applicable statutory rate in the state in which they reside. The rescission offer expired at 5:00 pm (CST) on April 29, 2017. None of the Company’s stockholders opted to rescind their prior purchase/acquisitions in connection with the rescission offer.

 

The federal securities laws and certain state securities laws do not expressly provide that a rescission offer will terminate a purchaser’s right to rescind a sale of securities that was not registered under the relevant securities laws as required. Accordingly, the Company may continue to be potentially liable under certain securities laws for the offer and sale of the shares sold and issued between May 2014 and September 2016, totaling $57,950 of securities in aggregate, along with statutory interest on such shares, even after the Company completed the rescission offers.

 

 
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This amount is recorded in equity in the accompanying September 30, 2020 and December 31, 2019 balance sheets. This will be evaluated at each reporting period for reclassification to a liability if a rescission request is made.

 

Effective on November 3, 2017, Michael Chavez, the Company’s former sole director, Chief Executive Officer and President of the Company, entered into a Voting Agreement with Elijah May, the Company’s then Chief Operating Officer (COO), and current sole director, Chief Executive Officer and President as well as the Company’s COO (the “Voting Agreement”), resulting in a change in control of the Company.

 

Pursuant to the Voting Agreement, Mr. Chavez provided complete authority to Mr. May to vote the 4,000,000 shares of common stock which Mr. Chavez then held (and any other securities of the Company obtained by Mr. Chavez in the future) at any and all meetings of stockholders of the Company and via any written consents. Those 4,000,000 shares represented 27.4% of the Company’s common stock as of the parties’ entry into the Voting Agreement and together with the 4,500,000 shares held by Mr. May prior to the parties’ entry into the Voting Agreement, constituted 58.3% of the Company’s total outstanding shares of common stock. The Voting Agreement has a term of ten years, through November 3, 2027, but can be terminated at any time by Mr. May and terminates automatically upon the death of Mr. May. In connection with his entry into the Voting Agreement, Mr. Chavez provided Mr. May an irrevocable voting proxy to vote the shares covered by the Voting Agreement. Additionally, during the term of such agreement, Mr. Chavez agreed not to transfer the shares covered by the Voting Agreement except pursuant to certain limited exceptions. Due to the Voting Agreement, Mr. May holds voting control over the Company due to his ability to vote 58.3% of the Company’s total outstanding shares of voting stock.

 

Effective on November 3, 2017, the Board of Directors of the Company and the Board of Directors of Reliant Pools Inc., the Company’s wholly-owned subsidiary, each then consisting solely of Mr. Chavez, increased the number of members of the Board of Directors of each company from one to two and appointed Mr. May as a member of the Board of Directors of each company to fill the vacancy created by such vacancy.

   

Note 6. Commitments and Contingencies

   

The Company leases approximately 1,000 square feet of office space in Austin, Texas. The Company extended the office space lease from October 1, 2020 through September 30, 2021 for a rental rate of $1,850 per month. Lease expense was $17,415 and $17,145 for the nine months ended September 30, 2020 and 2019, respectively.

 

On October 19, 2018, a former client, Paul T. Denucci filed an Original Petition naming the Company, Elijah May, our sole officer and director and Michael Chavez, our prior Chief Executive Officer and former sole director, as defendants. The Original Petition was originally filed in Williamson County, Texas, provided the proceeding was subsequently moved to the County Court of Travis County, Texas (County Court 2 – Cause No. C-1-CV-18-011465). The Original Petition alleged breach of contract and alleged defects in the pool which the Company built on Mr. Denucci’s behalf. The Original Petition sought damages in an amount sufficient to allow Mr. Denucci to repair the alleged defects in the pool. We denied all of Mr. Denucci’s claims and filed various responses and proceedings with the court in connection therewith. A bench trial in the matter was held in January 2020. On May 7, 2020, the trial judge ruled in favor of Mr. Denucci, the former client. The final judgment entered by the trial judge awarded Mr. Denucci actual damages in the amount of $177,053; prejudgment interest actual damages at the rate of 5% per annum from April 28, 2019 to May 7, 2020 (approximately $8,900); reasonable and necessary attorney’s fees in the amount of $85,291; court costs; and post-judgment interest at the rate of 5% per annum until all amounts are paid in full. In June 2020, Mr. Denucci filed a petition with the court to include both individuals personally (i.e., Mr. Chavez and Mr. May) and Reliant Holdings Inc. and other subsidiaries in the lawsuit.

 

 
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On December 21, 2018, a former client, Brian Moats filed an Original Petition naming Reliant Pools as a defendant in a suit filed in the County Court at Law No. 2 for Travis County, Texas (Cause No. C-1-CV-18-012062). The suit alleged that the Company failed to install a French drain under the pool as required by the terms of the contract, alleged causes of action of breach of express warranty and breach of contract and sought damages of between $100,000 and $200,000. We denied Mr. Moats’ claims.

 

During the nine months ended September 30, 2020, the Company accrued $145,000 related to the above pending lawsuit with Mr. Moats. The associated expense is included in general and administrative expense.

 

In September and October 2020, we entered into separate agreements with each of the parties above (including a settlement in principle with Mr. Moats) to settle the lawsuits in consideration for an aggregate of $420,000.

 

Note 7. Note Payable

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Term note with a bank secured by car, payable in monthly installments of $660, including interest at 3.99% through February 27, 2025

 

$ 30,747

 

 

$

 

 

 

 

 

 

 

 

 

 

Paycheck Protection Program

 

 

51,113

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

 

81,860

 

 

 

 

Less: current portion

 

 

(6,807 )

 

 

 

Long-term debt net of current portion

 

$ 75,053

 

 

$

 

 

On April 28, 2020, the Company secured a construction loan to be used to develop the land purchased in the third quarter of 2019. The loan is for $221,000, bears interest at the rate of 6.25% and is repayable one year after issuance. As of September 30, 2020, no proceeds have been drawn on this instrument.

 

On May 7, 2020, the Company received $51,113 of proceeds from the Small Business Administration’s Paycheck Protection Program. The funds will be subject to repayment and a 1% interest rate if not forgiven in accordance with the program.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report. These factors include:

 

 

the need for additional funding;

 

our lack of a significant operating history;

 

the fact that our sole officer and director has significant control over our voting stock;

 

the loss of key personnel or failure to attract, integrate and retain additional personnel;

 

corporate governance risks;

 

economic downturns;

 

the level of competition in our industry and our ability to compete;

 

our ability to respond to changes in our industry;

 

our ability to protect our intellectual property and not infringe on others’ intellectual property;

 

our ability to scale our business;

 

our ability to maintain supplier relationships;

 

our ability to obtain and retain customers;

 

our ability to execute our business strategy in a very competitive environment;

 

trends in and the market for recreational pools and services;

 

lack of insurance policies;

 

dependence on a small number of customers;

 

changes in laws and regulations;

 

the market for our common stock;

 

our ability to effectively manage our growth;

 

dilution to existing stockholders;

 

costs and expenses associated with being a public company;

 

client lawsuits, damages, judgements and settlements required to be paid in connection therewith and the effects thereof on our reputation;

 

health risks, economic slowdowns and rescissions and other negative outcomes caused by COVID-19 and governmental responses thereto;

 

economic downturns both in the United States and globally;

 

risk of increased regulation of our operations; and

 

other risk factors included under “Risk Factors” below and under “Item 1A. Risk Factors” in our latest Annual Report on Form 10-K.

 

You should read the matters described and incorporated by reference in “Risk Factors“ and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

 

 
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This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations“ contained in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on May 19, 2020 (the “Annual Report”).

 

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information” – “Item 1. Financial Statements”.

 

In this Quarterly Report on Form 10-Q, we may rely on and refer to information regarding the industries in which we operate in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified any of it.

 

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Reliant”, “Reliant Holdings” and “Reliant Holdings, Inc.” refer specifically to Reliant Holdings, Inc. and its consolidated subsidiaries.

 

In addition, unless the context otherwise requires and for the purposes of this Report only:

 

 

Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and

 

Securities Act” refers to the Securities Act of 1933, as amended.

 

Where You Can Find Other Information

 

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us at http://www.sec.gov (our filings can be found at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001682265). Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

 

Corporate Information

 

Our principal executive offices are located at 12343 Hymeadow Drive, Suite 3-A, Austin, Texas 78750, and our telephone number is (512) 407-2623. Our website address is www.reliantholdingsinc.com. The information on, or that may be accessed through, our website is not incorporated by reference into this Report and should not be considered a part of this Report.

 

Organizational History

 

We were formed as a Nevada corporation on May 19, 2014.

 

On May 23, 2014, we, along with Reliant Pools, Inc. (“Reliant Pools”) and the stockholders of Reliant Pools, entered into an Agreement for the Exchange of Common Stock (the “Exchange Agreement”). Pursuant to the Exchange Agreement, the stockholders of Reliant Pools exchanged 2.1 million shares of common stock, representing 100% of the outstanding common stock of Reliant Pools, for 2.1 million shares of our common stock (the “Exchange”). As a result of the Exchange, Reliant Pools became our wholly-owned subsidiary. The President of Reliant Pools, and its largest stockholder at the time of the Exchange was Michael Chavez, our then President, then Chief Executive Officer and then sole director. The following shares of restricted common stock were issued in connection with the Exchange: 900,000 shares of common stock to Michael Chavez, our then President, then Chief Executive Officer and then sole director; 750,000 shares of common stock to Elijah May, our current Chief Executive Officer and sole director; and 450,000 shares of common stock to Becky Spohn, our former Controller.

  

 
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Reliant Pools was originally formed as a Texas General Partnership (Reliant Pools, G.P.) in September 2013, and was owned by Mr. Chavez, Mr. May, Ms. Spohn, and a third party, who subsequently was unable to perform the services required for him to vest his interest, which interest was subsequently terminated, leaving Mr. Chavez, Mr. May and Ms. Spohn as the sole owners of Reliant Pools, G.P. In May 2014, Reliant Pools, G.P. was converted from a Texas General Partnership to a Nevada corporation, Reliant Pools, Inc., with the same ownership as described above at the time of the Exchange.

 

On October 10, 2018, the Company incorporated a new wholly-owned subsidiary in Texas, Reliant Custom Homes, Inc. The Company is exploring opportunities to expand operations in the Austin, Texas area as a custom home builder. To date, the Company has engaged a consultant in connection with custom home builder services, and has purchased land located in Lago Vista, Texas, in the Texas Hill Country, outside of Austin, Texas, on which it intends to construct a custom home which it then plans to sell. Current plans are for the custom home to be approximately 2,300 square feet. In April 2020, the Company obtained a construction loan for $221,000 for the construction costs associated with the build, but has not yet drawn any proceeds on the loan, or began construction.

 

Organizational Structure

 

The following chart reflects our current organization structure, including our wholly-owned subsidiaries.

 

 

 

Description of Business Operations

 

Residential Pools

 

We, through our wholly-owned subsidiary Reliant Pools (which has been in operation since September 2013), are an award winning, custom, swimming pool construction company located in the greater Austin, Texas market. In the future, we also plan to offer residential swimming pool maintenance services. We assist customers with the design of, and then construct, recreational pools which blend in with the surroundings, geometric pools which complement the home’s architecture and water features (e.g., waterfalls and negative edge pools) which provide the relaxing sounds of moving water. We won four Association of Pool & Spa Professionals (ARSP) Region 3 Design Awards for our designs in 2016 and one award in 2017. Moving forward, we plan on expanding our operations through an accretive business model in which we plan to acquire competitors in both the custom pool construction and pool maintenance/service industries locally, regionally, and nationally, funding permitting.

 

To date, the majority of our growth has been through referral business. We offer a wide variety of pool projects based upon price and the desires of the client. When our sales personnel meet with a prospective customer, we provide them with an array of projects from the basic pool building to more high-end projects that may include waterfalls, mason work, backyard lighting and in-ground spas to highlight the outdoor living experience.

 

 
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Custom Homes

 

On October 10, 2018, the Company incorporated a new wholly-owned subsidiary in Texas, Reliant Custom Homes, Inc. The Company is exploring opportunities to expand operations in the Austin, Texas area as a custom home builder. To date, the Company has engaged a consultant in connection with custom home builder services, and has purchased land located in Lago Vista, Texas, in the Texas Hill Country, outside of Austin, Texas, on which it intends to construct a custom home which it then plans to sell. Current plans are for the custom home to be approximately 2,300 square feet. In April 2020, the Company obtained a construction loan for $221,000 for the construction costs associated with the build, but has not yet drawn any proceeds on the loan or began construction.

 

The construction of our planned custom home is anticipated to be conducted under the supervision of an on-site construction manager. Substantially all of our construction work is planned to be performed by independent subcontractors under contracts that establish a specific scope of work at an agreed-upon price. In addition, we anticipate that our construction field manager will interact with homebuyers throughout the construction process and instruct homebuyers on post-closing home maintenance.

 

We plan to maintain efficient construction operations and use industry and company-specific construction practices.

 

Generally, we anticipate the construction materials to be used in our home builder operations will be readily available from numerous sources. However, the cost of certain building materials, especially lumber, steel, concrete, copper, and petroleum-based materials, is influenced by changes in global commodity prices, national tariffs, and other foreign trade factors. Additionally, the ability to consistently source qualified labor at reasonable prices may be challenging and we cannot determine the extent to which necessary building materials and labor will be available at reasonable prices in the future.

 

We currently anticipate building custom homes on a built-to-order basis where we do not begin construction of the home until we have a signed contract with a customer. However, we may in the future also build speculative (“spec”) homes, which would allow us to compete with existing homes available in the market, especially for homebuyers that require a home within a short time frame.

 

We plan to market our custom home services around the end of fiscal 2020.

 

Novel Coronavirus (COVID-19)

 

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions, including Travis, County, Texas, where the Company has its operations, began issuing ‘stay-at-home’ orders, which continue in various forms as of the date of this report. Notwithstanding such ‘stay-at-home’ and similar orders, the Company has actually seen an increase in demand for new pools during the pandemic. The Company believes that this is because homeowners are spending more time at home and possibly because they have more disposable income due to the unavailability of other entertainment choices and travel requirements. However, the full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic. For example, it is possible that the current outbreak or continued spread of COVID-19, including, but not limited to, expected increases in the number of persons infected with COVID-19 during the fall and winter months, will cause a global recession, which will result in a decrease in the demand for our services, or future ‘stay-at-home’ orders will prevent us from engaging new clients or completing pool builds then in progress. Additionally, the Company has had issues with sub-contractors coming down with COVID-19 which has caused construction delays and has further seen delays in permitting caused by COVID-19 issues. Furthermore, there is a risk that city inspections cease altogether for a period of time as a result of potential future COVID-19 ‘stay-at-home’ orders, although none are currently planned. Notwithstanding the above, the demand for pools remains high in Austin and surrounding areas.

  

 
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Future impacts of the coronavirus and the government’s response to such virus, including declines in spending of disposable income and potential future recessions, cannot be predicted at this time and may result in negative impacts on our operating results, cash flow and prospects, all of which may cause the value of our securities to decline in value.

 

Currently we believe that we have sufficient cash on hand and will generate sufficient cash through operations to support our operations for the foreseeable future, but will need to raise additional funding as discussed below, to satisfy a settlement in principle with a former client; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.

 

The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks.

 

Plan of Operations

 

We had a working capital deficit of $160,336 as of September 30, 2020. With our current cash on hand, expected revenues, and based on our current average monthly expenses, we anticipate the need for additional funding in order to continue our operations at their current levels, to pay the costs associated with being a public company, for the next 12 months, and to satisfy a settlement in principle of outstanding claims with a former customer as described under “Part I” - “Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6. Commitments and Contingencies” hereof. We may also require additional funding in the future to expand or complete acquisitions. Our plan for the next twelve months is to continue using the same marketing and management strategies and continue providing a quality product with excellent customer service while also seeking to expand our operations organically or through acquisitions as funding and opportunities arise, and, as discussed above, we have also purchased a homesite which we intend to construct a custom home on which we then plan to sell. As our business continues to grow, customer feedback will be integral in making small adjustments to improve the product and overall customer experience. We plan to raise additional required funding when required through the sale of debt or equity, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues. Furthermore, in order to pay amounts owed in connection with proposed settlements, we may be forced to liquidate assets and/or abandon certain of our business plans. If we are unable to pay such amounts, we may be forced to cease operations and/or seek bankruptcy protection.

 

RESULTS OF OPERATIONS

 

For the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

 

We had revenue of $555,073 for the three months ended September 30, 2020, compared to revenue of $591,891 for the three months ended September 30, 2019, a decrease of $36,818 or 6.2% from the prior period. We recognize revenue based on the percentage that a job is complete rather than upon completion. As such, total revenue recognized for each period may be different than the product of total completed pools during each period multiplied by the average pool contract price of each pool during such period, as the construction of certain pools may have started in one period and ended in another.

 

We had cost of goods sold of $407,229 for the three months ended September 30, 2020, compared to cost of goods sold of $401,284 for the three months ended September 30, 2019, an increase of $5,945 or 1.5% from the prior period.

 

 
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Cost of goods sold increased mainly due to an increase in pool equipment and masonry, stone and tile. The timing of our cost of goods sold is materially impacted based on the overall scope and timing of the projects we are working on. The expenses which attributed to the increase in cost of goods sold for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, included:

 

 

For the

Three

 

 

For the

Three

 

 

 

 

 

 

 

 

 

Months

Ended

 

 

Months

Ended

 

 

 

 

 

 

 

Cost of Goods Sold Expense

 

September 30,

2020

 

 

September 30,

2019

 

 

Increase /(Decrease)

 

 

Percentage

Change

 

Cost of decking

 

$ 37,509

 

 

$ 65,191

 

 

$ (27,682 )

 

 

(42 )%

Plaster used in the construction of pools

 

 

26,717

 

 

 

24,605

 

 

 

2,112

 

 

 

9 %

Gunite used in the construction of pools

 

 

39,083

 

 

 

39,047

 

 

 

36

 

 

*

 

Pool equipment used to filter and circulate the water used in our pools

 

 

80,127

 

 

 

63,570

 

 

 

16,557

 

 

 

26 %

Masonry, stone and tile installed in and around our pools and coping expenses associated therewith

 

 

52,507

 

 

 

33,612

 

 

 

18,895

 

 

 

56 %

Excavation and steel expenses

 

 

67,730

 

 

 

54,506

 

 

 

13,224

 

 

 

24 %

Other, including labor

 

 

103,556

 

 

 

120,753

 

 

 

(17,197 )

 

 

(14 )%

Total

 

$ 407,229

 

 

$ 401,284

 

 

$ 5,945

 

 

 

1 %

 

* Less than 1%.

 

Cost of goods sold represents our pool construction costs, including raw materials, outsourced labor, installed equipment, tile and coping expenses, excavation costs and permit expenses. We anticipate our cost of goods sold increasing in approximate proportion to increases in revenue and decreasing in approximate proportion to decreases in revenue, moving forward, as our cost of goods sold are factored into the price we charge for our pools and represent the cost of pool construction, the majority of which is not fixed and varies depending on the total number of pools and construction projects we complete during each period and the size and complexity of such projects.

 

We had gross margin of $147,844 for the three months ended September 30, 2020, compared to gross margin of $190,607 for the three months ended September 30, 2019, a decrease of $42,763 or 22.4% from the prior period due to the reasons described above. Gross margin as a percentage of revenue was 26.6% and 32.2% for the three months ended September 30, 2020 and 2019, respectively.

 

We had operating expenses consisting solely of general and administrative expenses of $164,913 for the three months ended September 30, 2020, compared to operating expenses consisting solely of general and administrative expenses of $110,378 for the three months ended September 30, 2019. Operating expenses increased by $54,535 or 49% from the prior period mainly due to an additional accrual of $49,000 that was booked related to settlement of the lawsuit settled during the period. General and administrative expenses include the salaries of our employees, commissions and the fees paid to contract employees.

 

 
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We had interest income of $0 for the three months ended September 30, 2020, compared to interest income of $32 for the three months ended September 30, 2019. Interest income was in connection with interest generated by funds the Company maintained in its savings account.

 

We had interest expense of $320 and $127, for the three months ended September 30, 2020 and 2019, respectively, due to interest paid in connection with the purchase of a car used by our Chief Executive Officer, as described in greater detail under “Liquidity and Capital Resources” below.

 

We had net loss of $17,389 for the three months ended September 30, 2020, compared to net income of $80,134 for the three months ended September 30, 2019, a decrease in net income of $97,523 or 122%, mainly due to the decrease in revenue and the increase in general and administrative expenses as described above.

 

For the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

 

We had revenue of $1,381,051 for the nine months ended September 30, 2020, compared to revenue of $1,310,232 for the nine months ended September 30, 2019, an increase of $70,819 or 5.4% from the prior period. Revenue increased due to an increase in pool count during the comparable periods and general timing of contracts as well as the higher priced pools being completed in the current period. We recognize revenue based on the percentage that a job is complete rather than upon completion. As such, total revenue recognized for each period may be different than the product of total completed pools during each period multiplied by the average pool contract price of each pool during such period, as the construction of certain pools may have started in one period and ended in another.

 

We had cost of goods sold of $974,228 for the nine months ended September 30, 2020, compared to cost of goods sold of $869,962 for the nine months ended September 30, 2019, an increase of $104,266 or 12.0% from the prior period, mainly due to the increase in projects during the period as disclosed above.

 

Cost of goods sold increased mainly due to the number of pools completed combined with the increase in other costs, including masonry, stone and tile, excavation and steel and gunite. We have seen increased costs of gunite, masonry and pool equipment costs associated with higher end projects and increases in the average cost of constructed pools during the current period compared to the last. The expenses which attributed to the increase in cost of goods sold for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, included:

 

 

 

For the

Nine

 

 

For the

Nine

 

 

 

 

 

 

 

 

 

Months

Ended

 

 

Months

Ended

 

 

 

 

 

 

 

Cost of Goods Sold Expense

 

September 30,

2020

 

 

September 30,

2019

 

 

Increase/

(Decrease)

 

 

Percentage

Change

 

Cost of decking

 

$ 127,951

 

 

$ 153,463

 

 

$ (25,512 )

 

 

(17 )%

Plaster used in the construction of pools

 

 

78,388

 

 

 

67,152

 

 

 

11,236

 

 

 

17 %

Gunite used in the construction of pools

 

 

106,903

 

 

 

87,578

 

 

 

19,325

 

 

 

22 %

Pool equipment used to filter and circulate the water used in our pools

 

 

151,000

 

 

 

137,215

 

 

 

13,785

 

 

 

10 %

Masonry, stone and tile installed in and around our pools and coping expenses associated therewith

 

 

130,436

 

 

 

88,798

 

 

 

41,638

 

 

 

47 %

Excavation and steel expenses

 

 

145,027

 

 

 

116,201

 

 

 

28,826

 

 

 

25 %

Other, including labor

 

 

234,523

 

 

 

219,555

 

 

 

14,968

 

 

 

7 %

Total

 

$ 974,228

 

 

$ 869,962

 

 

$ 104,266

 

 

 

12 %

 

 
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Cost of goods sold represent our pool construction costs, including raw materials, outsourced labor, installed equipment, tile and coping expenses, excavation costs and permit expenses. We anticipate our cost of goods sold increasing in approximate proportion to increases in revenue and decreasing in approximate proportion to decreases in revenue, moving forward, as our cost of goods sold are factored into the price we charge for our pools and represent the cost of pool construction, the majority of which is not fixed and varies depending on the total number of pools and construction projects we complete during each period and the size and complexity of such projects.

 

We had gross margin of $406,823 for the nine months ended September 30, 2020, compared to gross margin of $440,270 for the nine months ended September 30, 2019, a decrease of $33,447 or 7.6% from the prior period due to the reasons described above. Gross margin as a percentage of revenue was 29.5% and 33.6% for the nine months ended September 30, 2020 and 2019, respectively.

 

We had operating expenses consisting solely of general and administrative expenses of $802,262 for the nine months ended September 30, 2020, compared to operating expenses consisting solely of general and administrative expenses of $355,036 for the nine months ended September 30, 2019. Operating expenses increased by $447,226 or 126% from the prior period mainly due to an accrual related to lawsuit settlement expenses. General and administrative expenses include the salaries of our employees, commissions and the fees paid to contract employees.

 

We had interest income of $22 for the nine months ended September 30, 2020, compared to interest income of $73 for the nine months ended September 30, 2019. Interest income was in connection with interest generated by funds the Company maintained in its savings account.

 

We had interest expense of $862 and $388, for the nine months ended September 30, 2020 and 2019, respectively, due to interest paid in connection with the purchase of a car used by our Chief Executive Officer, as described in greater detail under “Liquidity and Capital Resources” below.

 

We had a net loss of $347,279 for the nine months ended September 30, 2020, compared to net income of $84,919 for the nine months ended September 30, 2019, an increase in net loss of $432,198, mainly due to the increase in general and administrative expenses as described above in connection with accruals related to lawsuits, offset by the increase in revenues and increase in cost of revenues, each as discussed above.

 

Liquidity and Capital Resources

 

We had total assets of $281,451 as of September 30, 2020, consisting of total current assets of $238,946, which included cash of $205,082, real estate inventory of $33,448, federal income tax receivable of $416, and equipment, net of accumulated depreciation, of $42,505. Federal income tax receivable relates to a payment made by the Company to the United States Treasury in March 2016, in anticipation of Federal income tax the Company estimated would be owed at the end of the 2016 calendar year. There was no tax due for the years ended December 31, 2016, 2017, 2018 or 2019, due to the utilization of a net loss carryforward and application of prepaid taxes. Included in real estate inventory as of September 30, 2020 is the value of the land which the Company acquired in the third quarter of 2019, which it plans to build a custom home on. Equipment increased by $35,166 in connection with the purchase of a new vehicle as discussed below.

 

 
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We had total liabilities of $523,335 as of September 30, 2020, which included current liabilities of $448,282, including accounts payable and accrued liabilities of $166,458 (which included accrued lawsuit settlements of $145,000), contract liabilities, relating to billings in excess of costs and estimated earnings on uncompleted jobs of $275,017, and current portion of note payable of $6,807, and long-term liabilities including a long-term note payable, net of current portion of $75,053 relating to a vehicle (discussed below) and the PPP Note discussed below. The $145,000 of accrued lawsuit settlements represents amounts accrued in connection with the lawsuits described in greater detail under “Part I” - “Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6. Commitments and Contingencies” hereof.

  

On February 11, 2020, we purchased a Hyundai Genesis G80 for use by Mr. May. The Vehicle had a total purchase price of $50,616, including $11,000 which was paid as a down payment in cash. We entered into a term note, secured by the vehicle, for the remaining amount of the purchase price, which amount accrues interest at the rate of 3.99% per annum and is payable at the rate of $660 per month through maturity on February 27, 2025.

 

On April 28, 2020, the Company secured a construction loan from First United Bank and Trust Company to be used to develop the land purchased in the third quarter of 2019. The loan is in the amount of $221,000, bears interest at the rate of 6.25% per annum and is repayable on April 28, 2021. As of September 30, 2020 and through the date of this filing, no amount had been advanced on the loan.

 

On May 11, 2020, we (through Reliant Pools) received a loan (the “Loan”) from Wells Fargo Bank N.A. (the “Lender”) in the principal amount of $51,113, pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan is evidenced by a promissory note (the “Note”), dated effective May 4, 2020, issued by the Company to the Lender. The Note is unsecured, matures on May 4, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 2, 2020, following an initial deferral period as specified under the PPP. The Note may be prepaid at any time prior to maturity with no prepayment penalties. Proceeds from the Loan will be available to the Company to fund designated expenses, including certain payroll costs, rent, utilities and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP (including that up to 60% of such Loan funds are used for payroll). The Company has used the entire Loan amount for designated qualifying expenses and plans to apply for forgiveness of the respective Loan in accordance with the terms of the PPP. No assurance can be given that the Company will obtain forgiveness of the Loan in whole or in part. With respect to any portion of the Loan that is not forgiven, the Loan will be subject to customary provisions for a loan of this type, including customary events of default.

 

We had a working capital deficit of $209,336 as of September 30, 2020, compared to working capital of $147,056 as of December 31, 2019.

 

We had $110,656 of net cash used in operating activities for the nine months ended September 30, 2020, which was mainly due to $396,279 of net loss, offset by an increase of $178,527 in contract liabilities and $111,484 of accounts payable and accrued liabilities. During the period, a $275,000 lawsuit was settled and an additional lawsuit was still outstanding for which we accrued $145,000, which lawsuit has since been settled in principle. We had $83,909 of net cash provided by operating activities for the nine months ended September 30, 2019, due mainly to net income of $84,919.

 

We had $11,000 of net cash used in investing activities for the nine months ended September 30, 2020, which was solely due to the down payment on the vehicle purchase described above.

 

We had $46,058 of net cash provided by financing activities for the nine months ended September 30, 2020, which was due to the proceeds from the PPP Loan discussed above, offset by payments on our vehicle loan. We had $18,248 of cash used in financing activities for the nine months ended September 30, 2019, which was due solely to payments on note payable and related party advances.

 

 
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We do not currently have any additional commitments or identified sources of additional capital from third parties or from our officers, directors or majority stockholders. Additional financing may not be available on favorable terms, if at all.

 

In the future, we may be required to seek additional capital by selling additional debt or equity securities, or otherwise be required to bring cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then stockholders. Financing may not be available in amounts or on terms acceptable to us, or at all. In the event we are unable to raise additional funding and/or obtain revenues sufficient to support our expenses, we may be forced to curtail or abandon our business operations, and any investment in the Company could become worthless.

 

Critical Accounting Policies:

 

Emerging Growth Company. Section 107 of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

Revenue Recognition

 

On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“new revenue standard”) to all contracts using the modified retrospective method. The adoption of the new revenue standard had no material impact on our consolidated financial statements as it did not require a change in revenue recognition. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

Revenue is recognized based on the following five step model:

 

 

-

Identification of the contract with a customer

 

 

-

Identification of the performance obligations in the contract

 

 

-

Determination of the transaction price

 

 

-

Allocation of the transaction price to the performance obligations in the contract

 

 

-

Recognition of revenue when, or as, the Company satisfies a performance obligation

 

All of the Company’s revenue is currently generated from the design and installation of swimming pools. As such no further disaggregation of revenue information is provided.

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

 

 
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Performance Obligations Satisfied Over Time

 

Revenue for our contracts that satisfy the criteria for over time recognition is recognized as the work progresses. The majority of our revenue is derived from construction contracts and projects that typically span between 4 to 12 months. Our construction contracts will continue to be recognized over time because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. Contract costs include labor, material, and indirect costs.

 

Performance Obligations Satisfied at a Point in Time

 

Revenue for our contracts that do not satisfy the criteria for over time recognition is recognized at a point in time. Substantially all of our revenue recognized at a point in time is for work performed for pool maintenance or repairs. Unlike our construction contracts that use a cost-to-cost input measure for performance, the pool maintenance or repairs utilize an output measure for performance based on the completion of a unit of work. The typical time frame for completion of these services is less than one month. Upon fulfillment of the performance obligation, the customer is provided an invoice (or equivalent) demonstrating transfer of control or completion of service to the customer. We believe that point in time recognition remains appropriate for these contracts and will continue to recognize revenues upon completion of the performance obligation and issuance of an invoice.

 

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.

 

Backlog

 

On September 30, 2020, we had approximately $2,300,000 of remaining performance obligations on our construction contracts, which we also refer to as backlog. We expect to recognize our current backlog as revenue during the fourth quarter of 2020 and first half of 2021.

 

Contract Estimates

 

Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

 

Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.

 

Variable Consideration

 

Transaction price for our contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the most likely amount to which we expect to be entitled (or the most likely amount we expect to incur in the case of liquidated damages), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue. No adjustment on any one contract was material to our condensed consolidated financial statements for the nine months ended September 30, 2020.

 

 
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Contract Balances

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the consolidated balance sheet. On our construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs prior to revenue recognition, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

 

The Company recognizes revenue from the design and installation of swimming pools.

 

Accounts Receivable and Allowances. The Company does not charge interest to its customers and carries its customers’ receivables at their face amounts, less an allowance for doubtful accounts. Included in accounts receivable are balances billed to customers pursuant to retainage provisions in certain contracts that are due upon completion of the contract and acceptance by the customer, or earlier as provided by the contract. Based on the Company’s experience in recent years, the majority of customer balances at each balance sheet date are collected within twelve months. As is common practice in the industry, the Company classifies all accounts receivable, including retainage, as current assets. The contracting cycle for certain long-term contracts may extend beyond one year, and accordingly, collection of retainage on those contracts may extend beyond one year.

 

The Company grants trade credit, on a non-collateralized basis (with the exception of lien rights against the property in certain cases), to its customers and is subject to potential credit risk related to changes in business and overall economic activity. The Company analyzes specific accounts receivable balances, historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In the event that a customer balance is deemed to be uncollectible, the account balance is written-off against the allowance for doubtful accounts.

 

Classification of Construction Contract-related Assets and Liabilities. Costs and estimated earnings in excess of billings on uncompleted contracts are presented as a current asset in the accompanying consolidated balance sheets, and billings in excess of costs and estimated earnings on uncompleted contracts are presented as a current liability in the accompanying consolidated balance sheets. The Company’s contracts vary in duration, with the duration of some larger contracts exceeding one year. Consistent with industry practices, the Company includes the amounts realizable and payable under contracts, which may extend beyond one year, in current assets and current liabilities. The vast majority of these balances are settled within one year.

 

Equipment. Equipment, consisting mainly of two vehicles, is stated at cost. The Company depreciates the cost of equipment using the straight-line method over the estimated useful lives of the assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations for the period. The cost of maintenance and repairs is charged to operations as incurred; significant renewals improvements are capitalized. Depreciation expense was approximately $11,636 and $5,081 for the nine months ended September 30, 2020 and 2019, respectively. The estimated useful life of the vehicle is five years.

 

 
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Item 3. Quantitative and Qualitative Disclosures about Market Risk

   

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

Item 4. Controls and Procedures

   

Evaluation of Disclosure Controls and Procedures

 

We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow timely decisions regarding required disclosures.

 

Management, consisting of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. As of September 30, 2020, based on the evaluation of these disclosure controls and procedures, our CEO and CFO has concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Exchange Act, is recorded properly, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

 

Changes in Internal Control Over Financial Reporting

 

We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

   

Item 1. Legal Proceedings

   

We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business.

 

Such current litigation or other legal proceedings are described in, and incorporated by reference in, this “Item 1. Legal Proceedings” of this Form 10-Q from, “Part I” - “Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6. Commitments and Contingencies

 

The Company is unable to determine the estimate of the probable or reasonable possible loss or range of losses arising from the above referenced unsettled legal proceedings (as applicable).

 

Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

 

Item 1A. Risk Factors

   

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 30, 2020, under the heading “Item 1A. Risk Factors“, which are incorporated by reference herein, except as discussed below, and investors should review the risks provided in the Annual Report and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report, under “Item 1A. Risk Factors“ and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

 

The risk factor entitled “We may require additional financing, and we may not be able to raise funds on favorable terms or at all.” from the Form 10-K is replaced and superseded by the following:

 

We will require additional financing, and we may not be able to raise funds on favorable terms or at all.

 

We had a working capital deficit of $209,336 as of September 30, 2020. With our current cash on hand, expected revenues, and based on our current average monthly expenses, we anticipate the need for additional funding in order to continue our operations at their current levels, to pay the costs associated with being a public company, for the next 12 months, and to satisfy a settlement in principle of outstanding claims brought by a former customer against us as described under “Part I” - “Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6. Commitments and Contingencies” hereof. We may also require additional funding in the future to expand or complete acquisitions. Our plan for the next twelve months is to continue using the same marketing and management strategies and continue providing a quality product with excellent customer service while also seeking to expand our operations organically or through acquisitions as funding and opportunities arise, and, as discussed above, we have also purchased a homesite which we intend to construct a custom home on which we then plan to sell. As our business continues to grow, customer feedback will be integral in making small adjustments to improve the product and overall customer experience.

 

The most likely source of future funds presently available to us will be through the sale of equity capital. Any sale of share capital will result in dilution to existing stockholders. Furthermore, we may incur debt in the future, and may not have sufficient funds to repay our future indebtedness or may default on our future debts, jeopardizing our business viability.

 

 
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We may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to expand our operations and business, which might result in the value of our common stock decreasing in value or becoming worthless. Additional financing may not be available to us on terms that are acceptable. Consequently, we may not be able to proceed with our intended business plans. Substantial additional funds will still be required if we are to reach our goals that are outlined in this Report. Obtaining additional financing contains risks, including:

 

additional equity financing may not be available to us on satisfactory terms and any equity we are able to issue could lead to dilution for current stockholders;

 

loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and control or revocation provisions, which are not acceptable to management or our sole director;

 

the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing; and

 

if we fail to obtain required additional financing to grow our business, we would need to delay or scale back our business plan, reduce our operating costs, or reduce our headcount, each of which would have a material adverse effect on our business, future prospects, and financial condition.

 

Furthermore, in order to pay amounts owed in connection with pending lawsuits and judgments rendered against us, we may be forced to liquidate assets and/or abandon certain of our business plans. If we are unable to pay such amounts, we may be forced to cease operations and/or seek bankruptcy protection.

 

The risk factor entitled “New Our backlog may not be realized or may not result in revenue or profit.” from the Form 10-K is replaced and superseded by the following:

 

Our backlog may not be realized or may not result in revenue or profit.

 

As of September 30, 2020, we had approximately $2,300,000 of remaining performance obligations on our construction contracts, which we also refer to as backlog. We expect to recognize our current backlog as revenue during the fourth quarter of 2020 and first half of 2021. However, most of our contracts may be terminated by our customers on short notice. Reductions in backlog due to cancellation by a customer, or for other reasons, including, but not limited to COVID-19, economic uncertainty associated therewith, and delays caused by social distancing and “stay-at-home” orders, could significantly reduce the revenue that we actually receive from contracts in our backlog. In the event of a project cancellation, we may be reimbursed for certain costs, but we typically have no contractual right to the total revenue reflected in our backlog. Projects may remain in our backlog for extended periods of time.

 

Given these factors, our backlog at any point in time may not accurately represent the revenue that we expect to realize during any period, and our backlog as of the end of a fiscal year may not be indicative of the revenue we expect to earn in the following fiscal year. Inability to realize revenue from our backlog could have an adverse effect on our business.

   

 
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The risk factor entitled “A significant amount of our revenues are due to only a small number of customers, and if we were to lose any of those customers, our results of operations would be adversely affected.” from the Form 10-K is replaced and superseded by the following:

 

A significant amount of our revenues are due to only a small number of customers, and if we were to lose any of those customers, our results of operations would be adversely affected.

 

The Company had five customers representing more than 10% of gross revenue, and a combined 56% of revenue for the nine months ended September 30, 2020. The Company had four customers representing more than 10% of gross revenue, and a combined 48% of revenue for the nine months ended September 30, 2019. The Company had three customers representing more than 10% of gross revenue, and a combined 34% of revenue for the year ended December 31, 2019, no customers representing approximately 10% of gross revenues for the year ended December 31, 2018 and had two customers representing more than 10% of gross revenue, and a combined 23% of revenue for the year ended December 31, 2017.

 

As a result, the majority of our revenues have historically been due to only a small number of customers, and we anticipate this trend continuing moving forward. As a result, in the event our customers do not pay us amounts owed, terminate work in progress or we are unable to find new customers moving forward, it could have a materially adverse effect on our results of operations and could force us to curtail or abandon our current business operations.

 

The risk factor entitled “A failure to meet customer specifications or expectations could result in lost revenues, increased expenses, negative publicity, claims for damages and harm to our reputation.” from the Form 10-K is replaced and superseded by the following:

 

Prior lawsuits, settlements and judgments and/or a failure to meet customer specifications or expectations could result in lost revenues, increased expenses, negative publicity, claims for damages and harm to our reputation.

 

Two of our former customers previously filed lawsuits against us claiming breach of contract and alleged defects in the pools we built. In September and October 2020, we entered into separate agreements with each of the former customers (including a settlement in principle with one of the former customers) to settle the lawsuits in consideration for an aggregate of $420,000. Such claims by former customers, settlements or judgments and/or settlements in such litigation and/or a failure or inability by us to meet a future client’s expectations could damage our reputation and adversely affect our ability to attract new business and result in delayed or lost revenue. In the event the pools we complete are not up to the expectations and standards of our clients, we face negative publicity and our reputation could be hurt. Furthermore, we may be sued or unable to collect accounts receivable if a future client is not satisfied with our services.

 

In addition, any failure to meet customers’ specifications or expectations could result in:

 

 

delayed or lost revenue;

 

 

requirements to provide additional services to a customer at reduced charges or no charge (including, but not limited to extended warranties); and

 

 

claims by customers for substantial damages against us, regardless of our responsibility for such failure, which may not be covered by insurance policies and which may not be limited by contractual terms.

 

The following new risk factors supplement the risk factors included in the Form 10-K:

 

Our operations may be adversely affected by global epidemics, pandemics and similar health issues. Our business may be materially and adversely disrupted by the present outbreak and worldwide spread of COVID-19, including measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.

 

An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on our consolidated financial statements.

 

 
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On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and several states and municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including quarantines, and “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Specifically, Travis County and Austin, Texas, where the Company operates, issued “stay-at-home” and social distancing orders beginning in mid-April 2020, which have continued in effect through the filing date of this report.

 

To date, we have not experienced any material negative effects from, or declines in business relating to, COVID-19 and/or Travis County, Texas’s response to the coronavirus, which has included “stay-at-home” and social distancing orders. However, the Company has had issues with sub-contractors coming down with COVID-19 which has caused construction delays and has further seen delays in permitting caused by COVID-19 issues. Furthermore, there is a risk that city inspections cease altogether for a period of time as a result of potential future COVID-19 ‘stay-at-home’ orders, although none are currently planned. Notwithstanding the above, the demand for pools remains high in Austin and surrounding areas. Notwithstanding that, we are uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, which include, among other things, significant volatility in financial markets and a sharp decrease in the value of equity securities, including our common stock. In addition, we can provide no assurance as to whether the COVID-19 public health effort will be intensified to such an extent that we will not be able to conduct any business operations at all for an indefinite period.

 

Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 decrease consumer confidence generally or with respect to constructing a pool and/or purchasing a home; cause civil unrest; or precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products; impair our ability to sell and build pools in a typical manner or at all, generate revenues and cash flows, and/or access to lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business; increase the costs or decrease the supply of building materials or the availability of subcontractors and other talent, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts. The inherent uncertainty surrounding COVID-19, due in part to rapidly changing governmental directives, public health challenges and progress, and market reactions thereto, also makes it more challenging for our management to estimate the future performance of our business and develop strategies to generate growth or achieve our initial or any revised objectives for 2020 and into 2021.

 

Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, decreases in new pool contracts, pools built, average selling prices, revenues and net income, and such impacts could be material to our consolidated financial statements. In addition, should the COVID-19 public health effort intensify to such an extent that we cannot operate at all, we may generate few or no new pool contracts and/or completed pools during the applicable period, which could be prolonged. Along with a potential increase in cancellations of pool contracts, if there are prolonged government restrictions on our business and our customers, and/or an extended economic recession, we could be unable to produce revenues and cash flows sufficient to operate our business. Such a circumstance could, among other things, exhaust our available liquidity (and ability to access liquidity sources), which could cause the value of our common stock to decline in value or become worthless.

 

 
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We may not qualify for forgiveness of our PPP Loan. We face risks associated with such PPP Loan.

 

On May 11, 2020, we (through Reliant Pools) received a loan (the “Loan”) from Wells Fargo Bank N.A. (the “Lender”) in the principal amount of $51,113, pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan is evidenced by a promissory note (the “Note”), dated effective May 4, 2020, issued by the Company to the Lender. The Note is unsecured, matures on May 4, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 2, 2020, following an initial deferral period as specified under the PPP. The Note may be prepaid at any time prior to maturity with no prepayment penalties. Proceeds from the Loan will be available to the Company to fund designated expenses, including certain payroll costs, rent, utilities and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP (including that up to 60% of such Loan funds are used for payroll). The Company intends to use the entire PPP Loan amount for designated qualifying expenses and to apply for forgiveness of the respective PPP Loan in accordance with the terms of the PPP. Notwithstanding that, the Company may not qualify for forgiveness of the PPP Loan in whole or part and may be required to repay such PPP Loan in full. With respect to any portion of the PPP Loan that is not forgiven, the PPP Loan will be subject to customary provisions for a loan of this type, including customary events of default. In the event the PPP Loan is not forgiven, the debt service payments on such loan may negatively affect our ability to grow our operations, service other debt and/or pay our expenses as they come due. Furthermore, any default under the PPP Loan may require us to pay a significant amount of our available cash and/or cash flow to service such debt, which could have a material adverse effect on our operations. Any failure of the PPP Loan to be forgiven pursuant to its terms, and/or our requirement to repay the PPP Loan in whole or part, could cause the value of our common stock to decline in value.

 

We will need additional capital which may not be available on commercially acceptable terms, if at all, which raises questions about our ability to continue as a going concern.

 

We had a working capital deficit of $209,336 as of September 30, 2020. With our current cash on hand, expected revenues, and based on our current average monthly expenses, we anticipate the need for additional funding in order to continue our operations at their current levels, to pay the costs associated with being a public company, for the next 12 months, and to satisfy settlements of outstanding claims brought by a former customer of us as described under “Part I” - “Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6. Commitments and Contingencies” hereof. We may also require additional funding in the future to expand or complete acquisitions. We plan to raise such additional funding through the sale of debt or equity, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues. Furthermore, in order to pay amounts owed in connection with proposed settlements, we may be forced to liquidate assets and/or abandon certain of our business plans. If we are unable to pay such amounts, we may be forced to cease operations and/or seek bankruptcy protection.

 

These conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The financial statements included herein also include a going concern footnote from our auditors.

 

Additionally, on April 28, 2020, the Company (through Reliant Custom Homes) secured a construction loan from First United Bank and Trust Co. to be used to develop the land purchased in the third quarter of 2019, which loan provides for funding to be advanced from time to time pursuant to the requirements of the loan for the construction of a custom home. The loan is in the amount of $221,000 and bears interest at the rate of 6.25% per annum (18% upon the occurrence of an event of default). The loan is guaranteed by Reliant Pools and the Company and the land is pledged as collateral for security of the payment of the construction loan pursuant to a deed of trust. The loan matures on April 28, 2021. The loan agreement contains covenants and restrictions on us and our construction of the property and standard and customary events of default. The loan may be prepaid at any time without penalty. As of September 30, 2020, and through the date of this filing, no amount had been advanced under this loan.

  

Payments under the loan may decrease cash available for other expenses and our failure to pay the loan when due may have a material adverse effect on our operating results, ability to continue our business operations and the value of our securities. The repayment of the loan is secured by a security interest on our property and the home and is guaranteed by the Company and Reliant Pools. Our failure to comply with the terms of the loan may result in the lender foreclosing on the property and the home, or seeking to enforce the guarantees, which may have a material adverse effect on our assets and the value of our securities, and may force us to abandon our plans to develop a custom home.

 

 
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

   

None.

 

Use of Proceeds From Sale of Registered Securities

 

None.

 

Issuer Purchases of Equity Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

   

None.

 

Item 4. Mine Safety Disclosures

  

Not applicable.

 

Item 5. Other Information.

  

In September and October 2020, we entered into separate agreements with former customer (including a settlement in principle with a former customer) to settle the lawsuits in consideration for an aggregate of $420,000, as discussed above under “Item 1. Legal Proceedings” of this Form 10-Q from, “Part I” - “Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6. Commitments and Contingencies”.

  

 
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Item 6. Exhibits

   

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

 

 
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SIGNATURES

   

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

RELIANT HOLDINGS, INC.

 

 

 

 

 

Date: November 12, 2020

By:

 /s/ Elijah May

 

 

 

Elijah May

 

 

 

Chief Executive Officer and President

 

 

 

(Principal Executive Officer and Principal Financial/Accounting Officer)

 

 

 
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EXHIBIT INDEX

 

 

 

 

 

 

 

 Incorporated by Reference

Exhibit

Number

 

Description of Exhibit

 

Filed/

Furnished

Herewith

 

 

Form

 

Exhibit

 

Filing

Date

 

File

Number

2.1

 

Agreement for the Exchange of Common Stock dated May 23, 2014, by and between Reliant Holdings, Inc., Reliant Pools, Inc. and the stockholders of Reliant Pools, Inc.

 

S-1

 

2.1

 

10/27/2016

 

333-214274

3.1

 

Articles of Incorporation as amended and restated

 

S-1

 

3.1

 

10/27/2016

 

333-214274

3.2

 

Amended and Restated Bylaws

 

S-1

 

3.2

 

10/27/2016

 

333-214274

10.1

 

Standard Form of Construction Contract

 

S-1

 

10.1

 

10/27/2016

 

333-214274

10.2

 

Voting Agreement, dated as of November 3, 2017, by and among Michael Chavez and Elijah May

 

8-K

 

10.1

 

11/7/2017

 

333-214274

10.3

 

Form of Construction Loan Agreement dated April 28, 2020, by and between Reliant Custom Homes, Inc. and First United Bank and Trust Co.

 

10-Q

10.7

5/19/2020

000-56012

10.4

 

Form of Promissory Note in the amount of $221,000, dated April 28, 2020, by Reliant Custom Homes, Inc. in favor of First United Bank and Trust Co.

 

 

 

10-Q

 

10.8

5/19/2020

000-56012

10.5

 

Form of Commercial Guaranty dated April 28, 2020, by Reliant Holdings, Inc., in favor of First United Bank and Trust Co.

 

 

 

10-Q

 

10.9

5/19/2020

000-56012

10.6

 

Form of Commercial Guaranty dated April 28, 2020, by Reliant Pools, Inc., in favor of First United Bank and Trust Co.

 

 

 

10-Q

10.10

5/19/2020

000-56012

10.7

 

Form of Construction Deed of Trust Form dated April 28, 2020, by Reliant Custom Homes, Inc. in favor of First United Bank and Trust Co.

 

 

 

10-Q

10.11

5/19/2020

000-56012

10.8

 

Paycheck Protection Program Promissory Note and Agreement dated May 4, 2020 by and between Wells Fargo Bank N.A. and Reliant Pools, Inc., evidencing the loan of $51,113

10Q

10.12

5/19/2020

000-56012

14.1

 

Code of Ethics and Code of Conduct

 

S-1

 

14.1

 

10/27/16

 

333-214274

16.1

 

Letter to Securities and Exchange Commission from LBB & Associates Ltd., LLP, dated March 2, 2020

 

8-K

 

16.1

 

3/3/2020

 

000-56012

31.1*

 

Certification of Principal Executive and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

 

 

 

 

 

 

 

 

 

32.1**

 

Certification of Principal Executive and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act

 

 

 

 

 

 

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

 

* Filed herewith.

** Furnished Herewith.

 

 
34

 

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