Company Quick10K Filing
Reliant Holdings
Price-0.00 EPS0
Shares15 P/E-0
MCap-0 P/FCF-0
Net Debt-0 EBIT0
TEV-0 TEV/EBIT-3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-19
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-12
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-04-01
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-08-10
10-Q 2018-03-31 Filed 2018-05-14
10-K 2017-12-31 Filed 2018-04-13
10-Q 2017-09-30 Filed 2017-11-21
10-Q 2017-06-30 Filed 2017-10-04
8-K 2020-03-19
8-K 2020-03-02
8-K 2018-12-03

RHIS 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. The Company and Summary of Significant Accounting Policies
Note 2. Accounts Receivable
Note 3. Contracts in Process
Note 4. Concentration of Risk
Note 5. Equity
Note 6. Commitments and Contingencies
Note 7. Note Payable
Note 8 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information.
Item 6. Exhibits
EX-10.7 relt_ex107.htm
EX-10.8 relt_ex108.htm
EX-10.9 relt_ex109.htm
EX-10.10 relt_ex1010.htm
EX-10.11 relt_ex1011.htm
EX-10.12 relt_ex1012.htm
EX-31.1 relt_ex311.htm
EX-32.1 relt_ex321.htm

Reliant Holdings Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
31229022889714550462111-21282-1046752017201820192020
Assets, Equity
59189546441233692920944681963-455202017201820192020
Rev, G Profit, Net Income
875606699046420258505280-152902017201820192020
Ops, Inv, Fin

10-Q 1 relt_10q.htm FORM 10-Q relt_10q.htm

 

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 March 31, 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

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

 

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 May 19, 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 Consolidated Financial Statements (unaudited)

 

7

 

 

 

Item 2

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

 

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

22

 

 

 

Item 4.

Controls and Procedures

 

22

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

23

 

 

 

Item 1A.

Risk Factors

 

23

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

Item 3.

Defaults Upon Senior Securities

 

26

 

 

 

Item 4.

Mine Safety Disclosures

 

26

 

 

 

Item 5.

Other Information

 

26

 

 

 

Item 6.

Exhibits

 

27

 

 

 
2

Table of Contents

  

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Reliant Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 272,639

 

 

$ 280,680

 

Accounts receivable

 

 

1,245

 

 

 

-

 

Federal income tax receivable

 

 

416

 

 

 

416

 

Prepaid and other current assets

 

 

5,000

 

 

 

-

 

Real estate inventory

 

 

17,424

 

 

 

17,424

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

296,724

 

 

 

298,520

 

 

 

 

 

 

 

 

 

 

Equipment, net of accumulated depreciation of $31,020 and $27,587 as of

 

 

 

 

 

 

 

 

March 31, 2020 and December 31, 2019, respectively

 

 

50,708

 

 

 

7,339

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 347,432

 

 

$ 305,859

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

395,315

 

 

$ 54,974

 

Contract liabilities

 

 

94,473

 

 

 

96,490

 

Current portion of note payable

 

 

6,631

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

496,419

 

 

 

151,464

 

 

 

 

 

 

 

 

 

 

Long-term note payable, net of current portion

 

 

28,456

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

524,875

 

 

 

151,464

 

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

Common stock, 70,000,000 shares authorized, $0.001 par value,

 

 

 

 

 

 

 

 

14,585,000 issued and outstanding as of March 31, 2020 and December 31, 2019

 

 

14,585

 

 

 

14,585

 

Additional paid-in capital

 

 

43,365

 

 

 

43,365

 

Retained earnings (Accumulated deficit)

 

 

(235,393

)

 

 

96,445

 

 

 

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

 

(177,443

)

 

 

154,395

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$ 347,432

 

 

$ 305,859

 

 

 

 

 

 

 

 

 

 

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

 

 
3

Table of Contents

  

Reliant Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

$ 492,307

 

 

$ 359,213

 

Cost of goods sold

 

 

(335,183 )

 

 

(230,046 )

Gross Margin

 

 

157,124

 

 

 

129,167

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

General and administrative

 

 

488,865

 

 

 

122,711

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

(488,865

)

 

 

(122,711 )

 

 

 

 

 

 

 

 

 

Income (Loss) From Operations

 

 

(331,741

)

 

 

6,456

 

 

 

 

 

 

 

 

 

 

Other income / (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

22

 

 

 

22

 

Interest expense

 

 

(119 )

 

 

(138 )

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(97 )

 

 

(116 )

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(331,838

 

 

6,340

 

 

 

 

 

 

 

 

 

 

Provision for Income Tax

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(331,838

)

 

$ 6,340

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Per Share - Basic and Diluted

 

$

(0.02

)

 

$ 0.00

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

 

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 months ended March 31, 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

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 
5

Table of Contents

  

Reliant Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Operating Activities

 

 

 

 

 

 

Net income

 

$

(331,838

)

 

$ 6,340

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

3,433

 

 

 

1,694

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,245 )

 

 

-

 

Contract assets

 

 

-

 

 

 

9,776

 

Prepaid and other current assets

 

 

(5,000 )

 

 

(3,197 )

Contract liabilities

 

 

(2,017 )

 

 

(35,851 )

Accounts payable and accrued liabilities

 

 

340,341

 

 

18,211

 

 

 

 

 

 

 

 

 

 

Net Cash Provided By (Used In) Operating Activities

 

 

3,674

 

 

 

(3,027 )

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(11,000 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net Cash Provided By (Used In) Investing Activities

 

 

(11,000 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Payments on note payable

 

 

(715 )

 

 

(1,473 )

 

 

 

 

 

 

 

 

 

Net Cash Used In Financing Activities

 

 

(715 )

 

 

(1,473 )

 

 

 

 

 

 

 

 

 

Net change in Cash

 

 

(8,041 )

 

 

(4,500 )

Cash - Beginning of Period

 

 

280,680

 

 

 

181,093

 

Cash - End of Period

 

$ 272,639

 

 

$ 176,593

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures

 

 

 

 

 

 

 

 

Interest paid

 

$ 119

 

 

$ 138

 

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 months ended March 31, 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 March 31, 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 months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

 

Income Taxes

 

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income taxes and liabilities are determined based on the difference between financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.  The Company had a net deferred tax asset related to federal net operating loss carryforwards as of March 31, 2020. The federal net operating loss carryforward will begin to expire in 2040. Realization of the deferred tax asset is dependent, in part, on generating sufficient taxable income prior to expiration of the loss carryforwards. The Company has placed a 100% valuation allowance against the net deferred tax asset because future realization of these assets is not assured.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered losses as a result of the lawsuit accrual disclosed below. Due to these conditions, it raised substantial doubt about its ability to continue as a going concern. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans and cash from operations. The financial statements do not include any adjustments that may result should the Company be unable to continue as a going concern.

 

Note 2. Accounts Receivable

 

Accounts receivable consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Contract receivables

 

$ 4,245

 

 

$ 3,000

 

Less: Allowance for doubtful accounts

 

 

(3,000 )

 

 

(3,000 )

 

 

$ 1,245

 

 

$ -

 

 

The Company recognized bad debt expense of $0 during the three months ended March 31, 2020 and 2019.

 

 
7

Table of Contents

 

Note 3. Contracts in Process

 

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Costs on uncompleted contracts

 

$ 63,132

 

 

$ 244,557

 

Estimated earnings

 

 

31,095

 

 

 

120,453

 

 

 

 

94,227

 

 

 

365,010

 

Less: Progress billings

 

 

188,700

 

 

 

461,500

 

 

 

$ (94,473 )

 

$ (96,490 )

 

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

 

 

 

March 31,

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

 

 

(94,473 )

 

 

(96,490 )

 

 

$ (94,473 )

 

$ (96,490 )

 

Note 4. Concentration of Risk

 

The Company had gross revenue of $492,307 and $359,213 for the three months ended March 31, 2020 and 2019, respectively.

 

The Company had four customers representing more than 10% of gross revenue, and combined 84% of revenue for the three months ended March 31, 2020. The Company had four customers representing more than 10% of gross revenue, and combined 89% of revenue for the three months ended March 31, 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 in order to claim an exemption from registration pursuant to Rule 506 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.

 

 
8

Table of Contents

  

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 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 March 31, 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 lease was to expire in September 2017 with a monthly rent of $1,695. On September 5, 2017 and effective on September 30, 2017, the Company extended its office space lease from October 1, 2017 to September 30, 2018. In connection with the extension, the Company agreed to a rental increase to $1,745 per month. On October 15, 2018, the Company extended the office space lease from October 1, 2018 through September 30, 2019 for a rental rate of $1,795 per month. On August 30, 2019, and effective on September 30, 2019, the Company extended the office space lease again, from October 1, 2019, through September 30, 2020, for a rental rate of $1,845 per month.

 

Lease expense was $5,865 and $5,715 for the three months ended March 31, 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. The Company has thirty days from the date of the judgment to file a motion for a new trial. The Company is currently considering its next steps in connection with the matter.

 

 
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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 alleges that the Company failed to install a French drain under the pool as required by the terms of the contract, alleges causes of action of breach of express warranty and breach of contract and seeks damages of between $100,000 and $200,000. We deny Mr. Moats’ claims and intend to vigorously defend ourselves against such claims. The Company plans to set the trial date for later this year.

 

During the quarter ended March 31, 2020, the Company accrued $371,000 as an estimate related to the above pending lawsuits. The associated expense is included in general and administrative expense and includes attorney’s fees awarded by the court (in connection with the Denucci lawsuit).

 

Note 7. Note Payable

 

 

 

March 31,

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

 

$ 35,087

 

 

$ -

 

Total long-term debt

 

 

35,087

 

 

 

-

 

Less: current portion

 

 

(6,631 )

 

 

-

 

Long-term debt net of current portion

 

$ 28,456

 

 

$ -

 

 

 
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Note 8 – Subsequent events

 

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.

 

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 over two years and will bear interest at the rate of 1% per annum 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, and Section 21E of the Securities Exchange Act of 1934, as amended. 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;

 

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.

 

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, 2018, filed with the Securities and Exchange Commission on April 1, 2019 (the “Annual Report”).

 

 
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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.

 

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.

 

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.

 

Plan of Operations

 

We had a working capital deficit of $199,695 as of March 31, 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 an outstanding judgment rendered against us as described herein under “Legal Proceedings”. 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 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 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.

 

To date, we have not experienced any declines in business due to the coronavirus and Travis County, Texas’s response to the coronavirus, which includes issuing shelter-in-place orders. However, future impacts of the coronavirus and the government’s response to such virus 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.

 

 
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RESULTS OF OPERATIONS

 

For the Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

 

We had revenue of $492,307 for the three months ended March 31, 2020, compared to revenue of $359,213 for the three months ended March 31, 2019, an increase of $133,095 or 37.1% 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 completed 6 pools during the three months ended March 31, 2020 compared to completing 5 pools during the three months ended March 31, 2019. 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 $335,183 for the three months ended March 31, 2020, compared to cost of goods sold of $230,046 for the three months ended March 31, 2019, an increase of $105,137 or 45.7% 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 labor. In addition, we have seen increased costs of gunite 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 three months ended March 31, 2020, compared to the three months ended March 31, 2019, included:

 

 

 

For the Three

 

 

For the Three

 

 

 

 

 

 

 

 

 

Months Ended

 

 

Months Ended

 

 

 

 

Percentage

 

Cost of Goods Sold Expense

 

March 31, 2020

 

 

March 31, 2019

 

 

Increase

 

 

Change

 

Cost of decking

 

$ 57,416

 

 

$ 54,358

 

 

$ 3,058

 

 

 

5.6 %

Plaster used in the construction of pools

 

 

35,077

 

 

 

21,151

 

 

 

13,926

 

 

 

65.8 %

Gunite used in the construction of pools

 

 

36,479

 

 

 

16,311

 

 

 

20,168

 

 

 

123.6 %

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

 

 

45,690

 

 

 

31,220

 

 

 

14,470

 

 

 

46.3 %

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

 

 

49,788

 

 

 

37,456

 

 

 

12,332

 

 

 

32.9 %

Excavation and steel expenses

 

 

22,446

 

 

 

19,408

 

 

 

3,038

 

 

 

15.7

%

Other, including labor

 

 

88,287

 

 

 

50,142

 

 

 

38,145

 

 

 

76.1 %

Total

 

$ 335,183

 

 

$ 230,046

 

 

$ 105,137

 

 

 

45.7 %

 

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 $157,124 for the three months ended March 31, 2020, compared to gross margin of $129,167 for the three months ended March 31, 2019, an increase of $27,957 or 21.6% from the prior period due to the reasons described above. Gross margin as a percentage of revenue was 31.9% and 36.0% for the three months ended March 31, 2020 and 2019, respectively.

 

 
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We had operating expenses consisting solely of general and administrative expenses of $488,865 for the three months ended March 31, 2020, compared to operating expenses consisting solely of general and administrative expenses of $122,711 for the three months ended March 31, 2019. Operating expenses increased by $366,154 or 298.4% 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 three months ended March 31, 2020, compared to interest income of $22 for the three months ended March 31, 2019. Interest income was in connection with interest generated by funds the Company maintained in its savings account.

 

We had interest expense of $119 and $138, for the three months ended March 31, 2020 and 2019, respectively, due to interest paid in connection with the purchase of a truck used in our business, as described in greater detail under “Liquidity and Capital Resources” below.

  

We had a net loss of $331,838 for the three months ended March 31, 2020, compared to net income of $6,340 for the three months ended March 31, 2019, an increase in net loss of $338,178, mainly due to the increase in general and administrative expenses as described above in connection with accruals related to lawsuits.

 

Liquidity and Capital Resources

 

We had total assets of $347,432 as of March 31, 2020, consisting of total current assets of $296,724, which included cash of $272,639, real estate inventory of $17,424, accounts receivable of $1,245, federal income tax receivable of $416, prepaid and other assets of $5,000 in connection with prepaid legal services, and equipment, net of accumulated depreciation, of $50,708. 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 year ended December 31, 2019, due to the utilization of a net loss carryforward and application of prepaid taxes. Included in real estate inventory as of March 31, 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 $43,369 in connection with the purchase of a new vehicle as discussed below.

 

We had total liabilities of $524,875 as of March 31, 2020, which included current liabilities of $496,419, including accounts payable and accrued liabilities of $24,315, contract liabilities, relating to billings in excess of costs and estimated earnings on uncompleted jobs of $94,473, accrued lawsuit settlements of $371,000, and current portion of note payable of $6,631, and long-term liabilities including a long-term note payable, net of current portion of $28,456 relating to a new vehicle. The $371,000 of accrued lawsuit settlements represent amounts accrued in connection with the lawsuits described in greater detail under “Legal Proceedings”.

 

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.

  

 
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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 75% of  such Loan funds are used for payroll). The Company intends to use the entire Loan amount for designated qualifying expenses and 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 $199,695 as of March 31, 2020, compared to working capital of $147,056 as of December 31, 2019.

 

We had $3,674 of net cash provided by operating activities for the three months ended March 31, 2020, which was mainly due to $9,503 increase in deferred tax liability, together with net loss of $331,838, offset by $30,659 of decrease in accounts payable and accrued liabilities and an increase of $371,000 of accrued lawsuit settlement.

 

We had $11,000 of net cash used in investing activities for the three months ended March 31, 2020, which was solely due to the down payment on the vehicle purchase described above.

 

We had $715 of net cash used in financing activities for the three months ended March 31, 2020, which was due to payments on note payable. We had $1,473 of cash used in financing activities for the three months ended March 31, 2019, which was due solely to payments on note payable.

 

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.

 

 
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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

 

 

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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.

 

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.

 

 
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Backlog

 

On March 31, 2020, we had approximately $998,000 of remaining performance obligations on our construction contracts, which we also refer to as backlog. We expect to recognize our backlog as revenue during 2020.

 

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 three months ended March 31, 2020.

 

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.

 

 
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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 $3,433 and $1,694 for the three months ended March 31, 2020 and 2019, respectively. The estimated useful life of the truck is five years.

 

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 March 31, 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

 

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any material legal proceeding, except as set forth below. In addition, we are not aware of any material legal or governmental proceedings against us, or contemplated to be brought against us, except as set forth below.

 

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. The Company has thirty days from the date the judgment to file a motion for a new trial. The Company is currently considering its next steps in connection with the matter.

 

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 alleges that the Company failed to install a French drain under the pool as required by the terms of the contract, alleges causes of action of breach of express warranty and breach of contract and seeks damages of between $100,000 and $200,000. We deny Mr. Moats’ claims and intend to vigorously defend ourselves against such claims. The Company plans to set the trial date for later this year.

 

The Company is unable to determine the estimate of the probable or reasonable possible loss or range of losses arising from the above legal proceedings.

 

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”, 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 “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 March 31, 2020, we had approximately $998,476 of remaining performance obligations on our construction contracts, which we also refer to as backlog. We expect to recognize our backlog as revenue during the remainder of 2020. 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.

 

 
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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.

 

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

 

Our operations may be adverse effected 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.

 

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, have issued “stay-at-home” orders beginning in mid-April 2020, which remain in effect and prohibit non-essential businesses and non-essential activities.

 

To date we have not experienced any negative effects from, or declines in business relating to, COVID-19 and/or Travis County, Texas’s response to the coronavirus, which includes issuing shelter-in-place orders. However, 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.

 

 
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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.

 

One of our former clients recently received a judgment against us in a litigation matter in an amount equal to over 75% of our total assets and approximately 100% of our total liquid assets and we have another pending lawsuit, which judgment and potential future judgment we do not have sufficient funds to pay.

 

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 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. The Company has thirty days from the date the judgment to file a motion for a new trial. The Company is currently considering its next steps in connection with the matter. The total amount awarded to Mr. Denucci represents over 75% of our total assets and approximately 100% of our total cash as of March 31, 2020. In the event we are required to pay the amounts due to Mr. Denucci, we may be forced to liquidate assets, abandon certain of our business plans, cease operations and/or seek bankruptcy protection. In such event the value of our securities could decline in value or become worthless. All of the above may be further exacerbated by the outcome of another pending lawsuit filed by Brian Moats, another former client, in the same court, which seeks damages of between $100,000 and $200,000, and which a trial on such matter is set for later in the year.

 

We may not qualify for forgiveness of our PPP Loan. We face risks associated with such PPP Loan and our outstanding construction 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 75% 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 $199,695 as of March 31, 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 an outstanding judgment rendered against us as described herein under “Legal Proceedings”. 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 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.

 

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.

  

 
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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.

 

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.

 

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.

 

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.

  

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.

 

 
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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 75% of such Loan funds are used for payroll). The Company intends to use the entire Loan amount for designated qualifying expenses and 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.

 

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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Table of Contents

 

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: May 19, 2020

By:

/s/ Elijah May

 

 

 

Elijah May

 

 

 

Chief Executive Officer and President

 

 

 

(Principal Executive Officer and Principal Financial/Accounting Officer)

 

 

 
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Table of Contents

 

EXHIBIT INDEX

 

 

Incorporated by Reference

Exhibit Number

 

Description of Exhibit

 

Filed/
Furnished

Herewith

 

Form

 

Exhibit

 

Filing

Date/Period

End 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

 

10/27/16

 

333-214274

3.1

 

Articles of Incorporation as amended and restated

 

S-1

 

3.1

 

10/27/16

 

333-214274

3.2

 

Amended and Restated Bylaws

 

S-1

 

3.2

 

10/27/16

 

333-214274

10.1

 

Standard Form of Construction Contract

 

S-1

 

10.1

 

10/27/16

 

333-214274

10.2

 

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

 

8-K

 

10.1

 

11/7/17

 

333-214274

10.3

 

Lock-Up Agreement dated November 7, 2017, between Reliant Holdings, Inc. and the stockholders name therein

 

8-K

 

10.2

 

11/7/17

 

333-214274

10.4

 

First Amendment to Lock-Up Agreement dated December 5, 2017 and effective November 7, 2017, between Reliant Holdings, Inc. and the stockholders name therein

 

8-K

 

10.2

 

12/17/18

 

333-214274

10.5

 

Second Amendment to Lock-Up Agreement dated December 3, 2018 and effective November 7, 2017, between Reliant Holdings, Inc. and the stockholders name therein

 

8-K

 

10.3

 

12/17/18

 

333-214274

10.6

 

Lock-Up Agreement dated December 3, 2018, between Reliant Holdings, Inc. and the stockholders name therein

 

8-K

 

10.5

 

12/17/18

 

333-214274

10.7

 

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

x

 

 

10.8

 

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.

 

x

 

 

 

 

 

 

 

 

10.9

 

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

 

x

 

 

 

 

 

 

 

 

10.10

 

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

 

x

 

 

 

 

 

 

 

 

10.11

 

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.

 

x

 

 

 

 

 

 

 

 

10.12

 

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

 

 

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

 

3/3/20

 

000-56012

31.1*

 

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

 

x

 

 

32.1**

 

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

 

x

 

 

101.INS*

 

XBRL Instance Document

 

x

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

x

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

x

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 

x

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

x

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

x

 

 

* Filed herewith.

** Furnished Herewith.

 

 
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