UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal quarter ended June 30, 2021
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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
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(Exact name of registrant as specified in its charter) |
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Nevada |
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47-2200506 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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12343 Hymeadow Drive, Suite 3-A Austin, Texas |
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78750 |
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(Address of principal executive offices) |
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(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.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth |
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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: 16,385,000 shares of common stock are issued and outstanding as of August 13, 2021.
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TABLE OF CONTENTS
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Consolidated Statements of Stockholders’ Deficit (unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report. These factors include:
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the need for additional funding; |
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our lack of a significant operating history; |
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the fact that our sole officer and director has significant control over our voting stock; |
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the loss of key personnel or failure to attract, integrate and retain additional personnel; |
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corporate governance risks; |
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economic downturns; |
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the level of competition in our industry and our ability to compete; |
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our ability to respond to changes in our industry; |
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our ability to protect our intellectual property and not infringe on others’ intellectual property; |
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our ability to scale our business; |
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our ability to maintain supplier relationships; |
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our ability to obtain and retain customers; |
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our ability to execute our business strategy in a very competitive environment; |
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trends in and the market for recreational pools and services; |
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lack of insurance policies; |
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dependence on a small number of customers; |
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changes in laws and regulations; |
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the market for our common stock; |
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our ability to effectively manage our growth; |
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dilution to existing stockholders; |
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costs and expenses associated with being a public company; |
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client lawsuits, damages, judgments and settlements required to be paid in connection therewith and the effects thereof on our reputation; |
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health risks, economic slowdowns and rescissions and other negative outcomes caused by COVID-19 and governmental responses thereto; |
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economic downturns both in the United States and globally; |
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risk of increased regulation of our operations; and |
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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. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
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| Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
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Reliant Holdings, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the Three and Six Months ended June 30, 2021 and 2020
(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 June 30, 2021 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, 2020 and 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 31, 2021. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year ended December 31, 2021.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company’s continuation as a going concern is dependent upon its ability to generate revenues to sustain its current level of operations. Management believes in their ability to generate revenues to fund its current level of operation. During the six months ended June 30, 2021, the Company had a net loss and a working capital deficit. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management cannot be certain that such events can be achieved.
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Revenue Recognition – Home and Land
Home sale revenues - Home sale revenues and related profit are generally recognized when title to and possession of the home are transferred to the buyer at the home closing date. Our performance obligation to deliver the agreed-upon home is generally satisfied at the home closing date. Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash. Contract liabilities, include customer deposit liabilities related to homes sold but not yet delivered to buyers, totaled $0 at June 30, 2021 and December 31, 2020, related to Home and Land revenue. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit.
Land sale revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied.
Home and Real Estate Inventory
Inventory is stated at cost unless the carrying value is determined to not be recoverable, in which case the affected inventory is written down to fair value. Cost includes land acquisition, land development, and home construction costs, including interest, real estate taxes, and certain direct and indirect overhead costs related to development and construction. The specific identification method is used to accumulate home construction costs.
We capitalize interest cost into homebuilding inventories. Interest expense is allocated over the period based on the timing of home closings.
Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable to the home. Sales commissions are classified within selling, general, and administrative expenses. The construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid.
We assess the recoverability of our land inventory in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment.” We review our home and real estate inventory for indicators of impairment by property during each reporting period. If indicators of impairment are present for a property, generally, an undiscounted cash flow analysis is prepared in order to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, the assets are potentially impaired, requiring a fair value analysis. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. However, fair value can be determined through other methods, such as appraisals, contractual purchase offers, and other third-party opinions of value. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the six months ended June 30, 2021 and 2020, we recorded $0 of impairment charges.
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.
Loss Per Share
In accordance with accounting guidance now codified as ASC Topic 260, ”Earnings (Loss) per Share,” basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period. Diluted earnings loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. There were no dilutive shares outstanding during the six months ended June 30, 2021 and 2020.
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Recent Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
COVID-19
A novel strain of coronavirus (“COVID-19”) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations, workforce and markets served. While the Company has to date, not suffered any negative effects of COVID-19, the governmental response thereto, or any declines in demand for the Company’s services, the full extent of the COVID-19 outbreak and the ultimate impact on the Company’s operations is uncertain. A prolonged disruption could have a material adverse impact on financial results and business operations of the Company.
Note 2. Accounts Receivable
Accounts receivable consisted of the following:
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June 30, |
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December 31, |
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2020 |
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Contract receivables |
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$ | 3,000 |
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$ | 5,119 |
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Less: Allowance for doubtful accounts |
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Accounts receivable, net |
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$ | 3,000 |
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$ | 5,119 |
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The Company recognized no bad debt expense during the six months ended June 30, 2021 and 2020.
Note 3. Contracts in Process
The net asset (liability) position for contracts in process consisted of the following:
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June 30, |
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December 31, |
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2020 |
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Costs on uncompleted contracts |
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$ | 533,834 |
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$ | 441,589 |
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Estimated earnings |
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313,521 |
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217,499 |
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847,355 |
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659,088 |
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Less: Progress billings |
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1,182,390 |
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856,734 |
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Contract liabilities, net |
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$ | (335,035 | ) |
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$ | (197,646 | ) |
The net asset (liability) position for contracts in process is included in the accompanying consolidated balance sheets as follows:
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June 30, 2021 |
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December 31, 2020 |
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Costs and estimated earnings in excess of billings on uncompleted contracts |
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$ | 18,728 |
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$ | 69,510 |
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Billings in excess of costs and estimated earnings on uncompleted contracts |
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(353,763 | ) |
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(267,156 | ) |
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Contract liabilities |
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$ | (335,035 | ) |
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$ | (197,646 | ) |
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Note 4. Concentration of Risk
The Company had gross revenue of $1,390,524 and $825,978 for the six months ended June 30, 2021 and 2020, respectively.
The Company had three customers representing more than 10% of gross revenue, and combined 32% of revenue for the six months ended June 30, 2021. The Company had five customers representing more than 10% of gross revenue and combined 75% of revenue for the six months ended June 30, 2020.
Note 5. Equity
On December 4, 2020, the Company entered into an investor relations agreement and issued a total of 200,000 shares of restricted common stock in exchange for a six-month service period. The stock was valued at $34,000 at the date of grant and was recognized over the service period. During the six months ended June 30, 2021, the Company recognized $28,333 of expense related to these shares.
On January 27, 2021, the Company issued700,000 shares of restricted common stock to Elijah May, its sole officer and director, 200,000 shares of restricted common stock to Joel Hefner, the Vice President of Reliant Pools, a non-executive officer position, and 700,000 shares of restricted common stock to Michael Chavez, a consultant to the Company, each in consideration for services rendered. The shares were valued at $0.20 per share, the closing price of the Company’s stock on January 27, 2021. During the six months ended June 30, 2021, the Company recognized $320,000 of expense related to these shares.
On June 15, 2021, the Company issued 1,000 shares of its newly designated shares of Series A Preferred Stock to Elijah May, the Company’s Chief Executive Officer and sole director in consideration for services rendered and to be rendered to the Company. Such shares of Series A Preferred Stock vote in aggregate fifty-one percent (51%) of the total vote on all shareholder matters, voting separately as a class. Notwithstanding such voting rights, no change in control of the Company was deemed to have occurred in connection with the issuance since Mr. May controls the vote of 59.1% of the Company’s outstanding common stock and therefore controlled the Company prior to such issuance. The holder of the Series A Preferred Stock is not entitled to receive dividends, has no liquidation preference and no conversion rights. With the unanimous consent or approval of the board members, the Company have the option at its sole discretion to redeem any and all outstanding shares of Series A Preferred Stock for $1.00 per share.
Note 6. Commitments and Contingencies
The Company leases approximately 1,000 square feet of office space in Austin, Texas. The Company extended the office space lease from October 1, 2020 through September 30, 2021 for a rental rate of $1,850 per month. Lease expense was $11,650 and $11,595 for the six months ended June 30, 2021 and 2020, respectively.
On December 21, 2018, a former client, Brian Moats filed an Original Petition naming Reliant Pools as a defendant in a suit filed in the County Court at Law No. 2 for Travis County, Texas (Cause No. C-1-CV-18-012062). The suit alleged that the Company failed to install a French drain under the pool as required by the terms of the contract, alleged causes of action of breach of express warranty and breach of contract and sought damages of between $100,000 and $200,000. We denied Mr. Moats’ claims. In October 2020, Reliant Pools entered into a memorandum setting forth the proposed terms of a settlement with Mr. Moats. The settlement agreement terms, provide for Reliant Pools to pay Mr. Moats an aggregate of $145,000 (with $40,000 paid on October 30, 2020, $25,000 paid on December 4, 2020, and additional tranches of funds due from January 1, 2021 to March 1, 2022); the entry into an agreed judgment (which may be plead by Mr. Moats if we default in any payment); the provision of a security interest over our accounts receivable to secure amounts due to Mr. Moats; a non-suit of the lawsuit and our agreement to honor a prior warranty on Mr. Moats’ pool.
During the six months ended June 30, 2021, the Company paid Mr. Moats $45,000, pursuant to the settlement agreement, leaving $35,000 in accrued liabilities related to the above pending lawsuit with Mr. Moats.
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Note 7. Note Payable
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June 30, 2021 |
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December 31, 2020 |
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Term note with a bank secured by car, payable in monthly installments of $660, including interest at 3.99% through February 27, 2025 |
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$ | 24,434 |
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$ | 29,070 |
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Paycheck Protection Program |
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51,113 |
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Total long-term debt |
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80,183 |
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Less: current portion |
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(6,875 | ) |
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Long-term debt net of current portion |
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$ | 17,360 |
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$ | 73,308 |
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On April 28, 2020, the Company secured a construction loan to be used to develop the land purchased in the third quarter of 2019. The loan is for $221,000, bears interest at the rate of 6.25% and is repayable one year after issuance. As of June 30, 2021, no proceeds have been drawn on this instrument. The loan renewed and has been extended through October 28, 2021.
On May 7, 2020, the Company received $51,113 of proceeds from the Small Business Administration’s Paycheck Protection Program (“PPP Loan”). The funds will be subject to repayment and a 1% interest rate if not forgiven in accordance with the program. During the year ended December 31, 2020, the Company applied for loan forgiveness under the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The forgiveness application was reviewed by both the lending bank and SBA. On April 27, 2021, the Company was notified that the outstanding principal and accrued interest for the PPP Loan was forgiven in full by the SBA.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
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, 2020, filed with the Securities and Exchange Commission on March 31, 2021 (the “Annual Report”).
Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information” – “Item 1. Financial Statements”.
In this Quarterly Report on Form 10-Q, we may rely on and refer to information regarding the industries in which we operate in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified any of it.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Reliant”, “Reliant Holdings” and “Reliant Holdings, Inc.” refer specifically to Reliant Holdings, Inc. and its consolidated subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this Report only:
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“Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
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“SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and |
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“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. 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.
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Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
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Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A. |
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Plan of Operations. A description of our plan of operations for the next 12 months including required funding. |
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Results of Operations. An analysis of our financial results comparing the three and six months ended June 30, 2021 and 2020. |
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Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition. |
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Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. |
Overview
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.
Summary 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. 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.
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. As of the date of this Report, the Company has cleared the lot where the home will be built and has recently received permits, however the Company has not yet drawn any proceeds on the loan or began construction. The loan renewed and has been extended through October 28, 2021.
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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 build-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 the third quarter of fiscal 2021. The Company is working to have easements released on the property and anticipates pouring the foundation within the next 30 days.
Novel Coronavirus (COVID-19)
In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April 2020, many U.S. states and local jurisdictions, including Travis, County, Texas, where the Company has its operations, began issuing ‘stay-at-home’ orders, which have mostly expired to date. Notwithstanding such ‘stay-at-home’ and similar orders, the Company has actually seen an increase in demand for new pools during the pandemic. The Company believes that this is because homeowners are spending more time at home and possibly because they have more disposable income due to the unavailability of other entertainment choices and travel requirements. However, the full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic. For example, it is possible that the current outbreak or continued spread of COVID-19, will cause a global recession, which will result in a decrease in the demand for our services, or future ‘stay-at-home’ orders will prevent us from engaging new clients or completing pool builds then in progress. Additionally, the Company has had issues with sub-contractors coming down with COVID-19 which has caused construction delays and has further seen delays in permitting caused by COVID-19 issues. Furthermore, there is a risk related to permitting taking longer and risk related to labor and equipment shortages. Notwithstanding the above, the demand for pools remains high in Austin and surrounding areas.
Future impacts of the coronavirus and the government’s response to such virus, including declines in spending of disposable income and potential future recessions, cannot be predicted at this time and may result in negative impacts on our operating results, cash flow and prospects, all of which may cause the value of our securities to decline in value.
Currently we believe that we have sufficient cash on hand and will generate sufficient cash through operations to support our operations for the foreseeable future, however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.
The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, virus mutations, and the number of persons who are willing to get vaccinated, as well as potential seasonality of new outbreaks.
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Plan of Operations
We had a working capital deficit of $76,341 as of June 30, 2021. With our current cash on hand, expected revenues, and based on our current average monthly expenses, we don’t currently anticipate the need for additional funding in order to continue our operations at their current levels and to pay the costs associated with being a public company for the next 12 months. We may however require additional funding in the future to expand or complete acquisitions. Our plan for the next twelve months is to continue using the same marketing and management strategies and continue providing a quality product with excellent customer service while also seeking to expand our operations organically or through acquisitions as funding and opportunities arise, and, as discussed above, we have also purchased a homesite which we intend to construct a custom home on which we then plan to sell. As our business continues to grow, customer feedback will be integral in making small adjustments to improve the product and overall customer experience. We plan to raise additional required funding when required through the sale of debt or equity, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues.
Since the COVID-19 pandemic began we have seen a sharp increase in demand for pools, which we attribute to more people working from home, and sheltering in place. We currently have a backlog which continues into February 2022. We are unclear whether the current demand for pools will continue, if and when, individuals begin working from their offices again. Notwithstanding that, we are currently experiencing delays in obtaining required equipment to start up all the pools we have finished, as equipment is currently being rationed by sellers due to increased demand as a result of the need to replace equipment which was damaged due to the unprecedented 2021 winter storms which affected the Austin area, and the overall increase in new pool builds, which is also being negatively affected by manufacturing and shipping delays due to COVID-19. We are also experiencing delays as subcontractors come down with COVID-19. Overall, demand for trade workers is extremely high, which has resulted in higher prices for pools, which we attempt to pass on to customers as much as possible.
Results of Operations
For the Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020
We had revenue of $807,463 for the three months ended June 30, 2021, compared to revenue of $333,671 for the three months ended June 30, 2020, an increase of $473,792 or 142% from the prior period. We recognize revenue based on the percentage that a job is complete rather than upon completion. As such, total revenue recognized for each period may be different than the product of total completed pools during each period multiplied by the average pool contract price of each pool during such period, as the construction of certain pools may have started in one period and ended in another. Revenue increased during the current period 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. As discussed above, we have seen an increase in the demand for pools since March 2020, which we believe is due to more people working from home due to the COVID-19 pandemic.
We had cost of goods sold of $498,860 for the three months ended June 30, 2021, compared to cost of goods sold of $231,816 for the three months ended June 30, 2020, an increase of $267,044 or 115% from the prior period.
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Cost of goods sold increased mainly due to an increase in pool equipment, gunite and labor costs, due to the increased demand we are seeing for such items due to the overall increase in demand for pools in the Austin, Texas area, as well as shortages of labor and increases in labor costs (due to COVID-19 and the overall increase in demand) and both shortages in, and increases in the cost of, equipment, as discussed in greater detail above. The timing of our cost of goods sold is materially impacted based on the overall scope and timing of the projects we are working on. In general, costs of goods sold for the three months ended June 30, 2021 were higher than for the three months ended June 30, 2020, due to an increase in the number of pools we are building. The expenses which attributed to the increase in cost of goods sold for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, included:
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For the Three |
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For the Three |
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Months Ended |
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Months Ended |
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Cost of Goods Sold Expense |
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June 30, 2021 |
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June 30, 2020 |
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Increase / (Decrease) |
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Percentage Change |
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|||||
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Cost of decking |
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$ | 53,110 |
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$ | 33,026 |
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|
$ | 20,084 |
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60.8 | % |
|
Plaster used in the construction of pools |
|
|
17,899 |
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|
|
16,594 |
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|
|
1,305 |
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|
|
7.9 | % |
|
Gunite used in the construction of pools |
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|
82,769 |
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|
|
31,341 |
|
|
|
51,428 |
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|
|
164.1 | % |
|
Pool equipment used to filter and circulate the water used in our pools |
|
|
88,239 |
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|
|
25,183 |
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|
|
63,056 |
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250.4 | % |
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Masonry, stone and tile installed in and around our pools and coping expenses associated therewith |
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44,021 |
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|
|
28,141 |
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|
|
15,880 |
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56.4 | % |
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Excavation and steel expenses |
|
|
81,829 |
|
|
|
54,851 |
|
|
|
26,978 |
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49.2 | % |
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Other, including labor |
|
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130,993 |
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|
|
42,680 |
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|
|
88,313 |
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|
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206.9 | % |
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Total |
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$ | 498,860 |
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|
$ | 231,816 |
|
|
$ | 267,044 |
|
|
|
115.2 | % |
Cost of goods sold represents our pool construction costs, including raw materials, outsourced labor, installed equipment, tile and coping expenses, excavation costs and permit expenses. We anticipate our cost of goods sold increasing in approximate proportion to increases in revenue and decreasing in approximate proportion to decreases in revenue, moving forward, as our cost of goods sold are factored into the price we charge for our pools and represent the cost of pool construction, the majority of which is not fixed and varies depending on the total number of pools and construction projects we complete during each period and the size and complexity of such projects.
We had a gross margin of $308,603 for the three months ended June 30, 2021, compared to a gross margin of $101,855 for the three months ended June 30, 2020, an increase of $206,748 or 203% from the prior period due to the reasons described above. Gross margin as a percentage of revenue was 38.2% and 30.5% for the three months ended June 30, 2021 and 2020, respectively. Gross margin as a percentage of revenue increased due to the recent completion of larger more profitable pools.
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We had operating expenses consisting solely of general and administrative expenses of $217,890 for the three months ended June 30, 2021 (including $12,333 of stock-based expenses described below under “Liquidity and Capital Resources”), compared to operating expenses consisting solely of general and administrative expenses of $148,484 for the three months ended June 30, 2020. Operating expenses increased by $69,406 or 47% from the prior period mainly due to the increase in the size of the business. General and administrative expenses include the salaries of our employees, commissions and the fees paid to contract employees.
We had interest income of $6 for the three months ended June 30, 2021, compared to interest income of $0 for the three months ended June 30, 2020. Interest income was in connection with interest generated by funds the Company maintained in its savings account.
We had interest expense of $90 and $423, for the three months ended June 30, 2021 and 2020, respectively, due to interest paid in connection with the purchase of a car used by our Chief Executive Officer, as described in greater detail under “Liquidity and Capital Resources” below.
We had a gain on forgiveness of debt of $51,577 for the three months ended June 30, 2021, compared to no gain or loss on the forgiveness of debt for the three months ended June 30, 2020. The gain on forgiveness of debt for the three months ended June 30, 2021, was in connection with the forgiveness of the PPP Note as discussed below under “Liquidity and Capital Resources”.
We had net income of $142,206 for the three months ended June 30, 2021, compared to a net loss of $47,052 for the three months ended June 30, 2020, an increase in net income of $189,258 or 402%, mainly due to the $473,792 or 142% increase in revenue, and the $51,577 non-cash gain on forgiveness of debt, offset by the $267,044 or 115% increase in cost of goods sold, each as described above.
For the Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
We had revenue of $1,390,524 for the six months ended June 30, 2021, compared to revenue of $825,978 for the six months ended June 30, 2020, an increase of $564,546 or 68% from the prior period. We recognize revenue based on the percentage that a job is complete rather than upon completion. As such, total revenue recognized for each period may be different than the product of total completed pools during each period multiplied by the average pool contract price of each pool during such period, as the construction of certain pools may have started in one period and ended in another. Revenue increased during the current period 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. As discussed above, we have seen an increase in the demand for pools since March 2020, which we believe is due to more people working from home due to the COVID-19 pandemic. We have also seen an increase in pool costs of approximately 20% compared to last year, due to increases in the costs of materials (described in greater detail below), which increases we have passed on to our customers to the extent possible.
We had cost of goods sold of $971,365 for the six months ended June 30, 2021, compared to cost of goods sold of $566,999 for the six months ended June 30, 2020, an increase of $404,366 or 71% from the prior period.
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Cost of goods sold increased mainly due to an increase in pool equipment, excavation costs and labor due to the increased demand we are seeing for such items due to the overall increase in demand for pools in the Austin, Texas area, as well as shortages of labor and increases in labor costs (due to COVID-19 and the overall increase in demand) and both shortages in, and increases in the cost of, equipment, as discussed in greater detail above. The timing of our cost of goods sold is materially impacted based on the overall scope and timing of the projects we are working on. The expenses which attributed to the increase in cost of goods sold for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, included:
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For the Six |
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For the Six |
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Months Ended |
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Months Ended |
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|
Cost of Goods Sold Expense |
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June 30, 2021 |
|
|
June 30, 2 020 |
|
|
Increase / (Decrease) |
|
Percentage Change |
|
|||||
|
Cost of decking |
|
$ | 102,855 |
|
|
$ | 90,442 |
|
|
$ | 12,413 |
|
|
|
13.7 | % |
|
Plaster used in the construction of pools |
|
|
50,758 |
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|
|
51,671 |
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|
|
(913 | ) |
|
|
-1.8 | % |
|
Gunite used in the construction of pools |
|
|
130,949 |
|
|
|
67,820 |
|
|
|
63,129 |
|
|
|
93.1 | % |
|
Pool equipment used to filter and circulate the water used in our pools |
|
|
145,474 |
|
|
|
70,873 |
|
|
|
74,601 |
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|
|
105.3 | % |
|
Masonry, stone and tile installed in and around our pools and coping expenses associated therewith |
|
|
114,443 |
|
|
|
77,929 |
|
|
|
36,514 |
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|
|
46.9 | % |
|
Excavation and steel expenses |
|
|
164,597 |
|
|
|
77,297 |
|
|
|
87,300 |
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|
|
112.9 | % |
|
Other, including labor |
|
|
262,289 |
|
|
|
130,967 |
|
|
|
131,322 |
|
|
|
100.3 | % |
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Total |
|
$ | 971,365 |
|
|
$ | 566,999 |
|
|
$ | 404,366 |
|
|
|
71.3 | % |
Cost of goods sold represents our pool construction costs, including raw materials, outsourced labor, installed equipment, tile and coping expenses, excavation costs and permit expenses. We anticipate our cost of goods sold increasing in approximate proportion to increases in revenue and decreasing in approximate proportion to decreases in revenue, moving forward, as our cost of goods sold are factored into the price we charge for our pools and represent the cost of pool construction, the majority of which is not fixed and varies depending on the total number of pools and construction projects we complete during each period and the size and complexity of such projects.
We had a gross margin of $419,159 for the six months ended June 30, 2021, compared to a gross margin of $258,979 for the six months ended June 30, 2020, a decrease of $160,180 or 62% from the prior period due to the reasons described above. Gross margin as a percentage of revenue was 30.1% and 31.4% for the six months ended June 30, 2021 and 2020, respectively.
We had operating expenses consisting solely of general and administrative expenses of $733,735 for the six months ended June 30, 2021 (including $349,333 of stock-based expenses described below under “Liquidity and Capital Resources”), compared to operating expenses consisting solely of general and administrative expenses of $637,349 for the six months ended June 30, 2020. Operating expenses increased by $96,386 or 15% from the prior period mainly due to an increase in stock-based compensation, payroll expense and professional fees offset with a decrease in lawsuit settlement expense. General and administrative expenses include the salaries of our employees, commissions and the fees paid to contract employees.
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We had interest income of $6 for the six months ended June 30, 2021, compared to interest income of $22 for the six months ended June 30, 2020. Interest income was in connection with interest generated by funds the Company maintained in its savings account.
We had interest expense of $493 and $542, for the six months ended June 30, 2021 and 2020, respectively, due to interest paid in connection with the purchase of a car used by our Chief Executive Officer, as described in greater detail under “Liquidity and Capital Resources” below.
We had a gain on forgiveness of debt of $51,577 for the six months ended June 30, 2021, compared to no gain or loss on the forgiveness of debt for the six months ended June 30, 2020. The gain on forgiveness of debt for the six months ended June 30, 2021, was in connection with the forgiveness of the PPP Note as discussed below under “Liquidity and Capital Resources”.
We had net loss of $263,486 for the six months ended June 30, 2021, compared to a net loss of $378,890 for the six months ended June 30, 2020, an increase in net loss of $115,404 or 30%, mainly due to the increase in cost of goods sold and increase in general and administrative expenses, offset by the increase in revenues and the non-cash gain on forgiveness of debt, each as described above.
Liquidity and Capital Resources
We had total assets of $418,496 as of June 30, 2021, consisting of total current assets of $384,954, which included cash of $317,339, house and real estate inventory of $45,471, federal income tax receivable of $416, contract assets of $18,728, and accounts receivable of $3,000 and equipment, net of accumulated depreciation, of $33,542. Federal income tax receivable relates to a payment made by the Company to the United States Treasury in March 2016, in anticipation of Federal income tax the Company estimated would be owed at the end of the 2016 calendar year. There was no tax due for the years ended December 31, 2016, 2017, 2018, 2019 or 2020, due to the utilization of a net loss carryforward and application of prepaid taxes. Included in house and real estate inventory as of June 30, 2021 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 relates to the vehicle discussed below. Contract assets include estimated earnings in excess of billings on uncompleted contracts. The Company is working to have easements released on the property and anticipates pouring the foundation within the next 30 days.
We had total liabilities of $478,655 as of June 30, 2021, which included current liabilities of $461,295, including accounts payable and accrued liabilities of $100,458 (which included accrued lawsuit settlements of $35,000), contract liabilities, relating to billings in excess of costs and estimated earnings on uncompleted jobs of $353,763, and current portion of note payable of $7,074, and long-term liabilities consisting of a long-term note payable, net of current portion of $17,360 relating to a vehicle (discussed below) and the PPP Note discussed below. The $35,000 of accrued lawsuit settlements represents amounts accrued in connection with the lawsuits described in greater detail under “Note 6. Commitments and Contingencies” in the Notes to Consolidated Financial Statements included above. Long term note payable, net of current portion, decreased by $55,948 from December 31, 2020, mainly due to the forgiveness of the Note, as discussed below.
On February 11, 2020, we purchased a Hyundai Genesis G80 for use by Mr. Elijah May, our Chief Executive Officer. 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.
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On April 28, 2020, the Company secured a construction loan from First United Bank and Trust Company to be used to develop the land purchased in the third quarter of 2019. The loan is in the amount of $221,000, bears interest at the rate of 6.25% per annum and is repayable on April 28, 2021. As of June 30, 2021, and through the date of this filing, no amount had been advanced on the loan. The loan renewed and has been extended through October 28, 2021.
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 was evidenced by a promissory note (the “Note”), dated effective May 4, 2020, issued by the Company to the Lender. The Note was unsecured, was to mature on May 4, 2022 and accrued 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. Proceeds from the Loan were 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 could be forgiven to the extent Loan proceeds were used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP (including that up to 60% of such Loan funds were used for payroll). The Company used the entire Loan amount for designated qualifying expenses and applied for forgiveness of the respective Loan in accordance with the terms of the PPP. On April 27, 2021, the Company was notified that the outstanding principal and accrued interest for the PPP Loan was forgiven in full by the SBA.
We had a working capital deficit of $76,341 as of June 30, 2021, compared to a working capital deficit of $110,920 as of December 31, 2020.
We had $129,408 of net cash provided by operating activities for the six months ended June 30, 2021, which was mainly due to an increase of 86,607 in contract liabilities and $349,333 of stock-based compensation, offset by $263,486 of net loss and $51,577 of gain on forgiveness of debt in connection with the forgiveness of the PPP Note. We had $22,379 of net cash used in operating activities for the six months ended June 30, 2020, due mainly to net loss of $378,890 and an increase of $57,000 in accounts receivable, offset by $339,306 of increase in accounts payable and accrued expenses. Stock based compensation includes the issuance, on January 27, 2021, of 700,000 shares of restricted common stock to Elijah May, its sole officer and director, 200,000 shares of restricted common stock to Joel Hefner, the Vice President of Reliant Pools, a non-executive officer position, and 700,000 shares of restricted common stock to Michael Chavez, a consultant to the Company, each in consideration for services rendered. The shares were valued at $0.20 per share, the closing price of the Company’s stock on January 27, 2021. Also, on December 4, 2020, the Company entered into an investor relations agreement and issued a total of 200,000 shares of restricted common stock in exchange for a six-month service period. The stock was valued at $34,000 at the date of grant and will be recognized over the service period. The Company also issued Mr. May in June 2021, 1,000 shares of Series A Preferred Stock, in consideration for services rendered (which shares, voting as a class, but together will all other voting shares of the Company, vote 51% of the total shareholder vote on all shareholder matters), which were valued at $1,000. During the six months ended June 30, 2021, the Company recognized $1,000 of stock-based expense related to these shares.
We had $11,000 of net cash used in investing activities for the six months ended June 30, 2020, which was solely due to the down payment on the vehicle purchase described above.
We had $4,636 of net cash used in financing activities for the six months ended June 30, 2021, which was due to payments on our vehicle loan. We had $48,238 of cash provided by financing activities for the six months ended June 30, 2020, which was due to the PPP Note proceeds, less payments on our vehicle loan.
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.
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Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.
“Note 1. The Company and Summary of Significant Accounting Policies” in Part I, Item 1 of this Form 10-Q and “Note 1. The Company, Summary of Significant Accounting Policies and Going Concern” in the Notes to Consolidated Financial Statements in Part II, Item 8, of the 2020 Annual Report, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.
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 June 30, 2021, 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.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business.
Such current litigation or other legal proceedings are described in, and incorporated by reference in, this “Item 1. Legal Proceedings” of this Form 10-Q from, “Part I” - “Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 6. Commitments and Contingencies”.
The Company is unable to determine the estimate of the probable or reasonable possible loss or range of losses arising from the above referenced unsettled legal proceedings.
Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 31, 2021, under the heading “Item 1A. Risk Factors”, which are incorporated by reference herein, except as discussed below, and investors should review the risks provided in the Annual Report and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report, under “Item 1A. Risk Factors” and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
The risk factor entitled “Our operations may be adversely affected by global epidemics, pandemics and similar health issues. Our business may be materially and adversely disrupted by the present outbreak and worldwide spread of COVID-19, including measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.” from the Form 10-K is replaced and superseded by the following:
Our operations may be adversely affected by global epidemics, pandemics and similar health issues. Our business may be materially and adversely disrupted by the present outbreak and worldwide spread of COVID-19, including measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.
An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on our consolidated financial statements.
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and several states and municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including quarantines, and “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Specifically, Travis County and Austin, Texas, where the Company operates, issued “stay-at-home” and social distancing orders beginning in mid-April 2020, which have mostly expired to date.
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To date, we have not experienced any material negative effects from, or declines in business relating to, COVID-19 and/or Travis County, Texas’s response to the coronavirus, which has included “stay-at-home” and social distancing orders. However, we are currently experiencing delays in obtaining required equipment to start up all the pools we have finished, as equipment is currently being rationed by sellers due to increased demand as a result of the need to replace equipment which was damaged due to the unprecedented 2021 winter storms which affected the Austin area, and the overall increase in new pool builds, which is also being negatively affected by manufacturing and shipping delays due to COVID-19. We are also experiencing delays as subcontractors come down with COVID-19. Overall, demand for trade workers is extremely high, which has resulted in higher prices for pools, which we attempt to pass on to customers as much as possible. Furthermore, there is a risk related to permitting taking longer and risk related to labor and equipment shortages. Notwithstanding the above, the demand for pools remains high in Austin and surrounding areas. Notwithstanding that, we are uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, which include, among other things, significant volatility in financial markets and a sharp decrease in the value of equity securities, including our common stock. In addition, we can provide no assurance as to whether the COVID-19 public health effort will be intensified to such an extent that we will not be able to conduct any business operations at all for an indefinite period.
Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 decrease consumer confidence generally or with respect to constructing a pool and/or purchasing a home; cause civil unrest; or precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products; impair our ability to sell and build pools in a typical manner or at all, generate revenues and cash flows, and/or access to lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business; increase the costs or decrease the supply of building materials or the availability of subcontractors and other talent, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts. The inherent uncertainty surrounding COVID-19, due in part to rapidly changing governmental directives, public health challenges and progress, the unknown real-world efficacy of vaccines and the public’s willingness to obtain such vaccines, 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 the remainder of 2021 and beyond.
Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, decreases in new pool contracts, pools built, average selling prices, revenues and net income, and such impacts could be material to our consolidated financial statements. In addition, should the COVID-19 public health effort intensify to such an extent that we cannot operate at all, we may generate few or no new pool contracts and/or completed pools during the applicable period, which could be prolonged. Along with a potential increase in cancellations of pool contracts, if there are prolonged government restrictions on our business and our customers, and/or an extended economic recession, we could be unable to produce revenues and cash flows sufficient to operate our business. Such a circumstance could, among other things, exhaust our available liquidity (and ability to access liquidity sources), which could cause the value of our common stock to decline in value or become worthless.
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The risk factor entitled “We will require additional financing, and we may not be able to raise funds on favorable terms or at all.” from the Form 10-K is replaced and superseded by the following:
We may require additional financing, and we may not be able to raise funds on favorable terms or at all.
We had a working capital deficit of $76,341 as of June 30, 2021. With our current cash on hand, expected revenues, and based on our current average monthly expenses, we don’t currently anticipate the need for additional funding in order to continue our operations at their current levels and to pay the costs associated with being a public company for the next 12 months. We may however require additional funding in the future to expand or complete acquisitions. In the event we require additional funding in the future, the most likely source of future funds presently available to us will be through the sale of equity capital. Any sale of share capital will result in dilution to existing stockholders. Furthermore, we may incur debt in the future, and may not have sufficient funds to repay our future indebtedness or may default on our future debts, jeopardizing our business viability.
We may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to expand our operations and business, which might result in the value of our common stock decreasing in value or becoming worthless. Additional financing may not be available to us on terms that are acceptable. Consequently, we may not be able to proceed with our intended business plans. Substantial additional funds will still be required if we are to reach our goals that are outlined in this Report. Obtaining additional financing contains risks, including:
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additional equity financing may not be available to us on satisfactory terms and any equity we are able to issue could lead to dilution for current stockholders; |
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loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and control or revocation provisions, which are not acceptable to management or our sole director; |
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the current environment in capital markets combined with our capital constraints may prevent us from being able to obtain adequate debt financing; and |
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if we fail to obtain required additional financing to grow our business, we would need to delay or scale back our business plan, reduce our operating costs, or reduce our headcount, each of which would have a material adverse effect on our business, future prospects, and financial condition. |
Furthermore, in order to pay amounts owed in connection with lawsuits, settlements, and judgments rendered against us, we may be forced to liquidate assets and/or abandon certain of our business plans. If we are unable to pay such amounts, we may be forced to cease operations and/or seek bankruptcy protection.
The risk factor entitled “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 June 30, 2021, we had approximately $3,200,000 of remaining performance obligations on our construction contracts, which we also refer to as backlog. We expect to recognize our current backlog as revenue during the second half of 2021 and first quarter of 2022. However, some 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 risk factor entitled “A significant amount of our revenues has historically been due to only a small number of customers, and if we were to lose any material customer, our results of operations could be adversely affected.” from the Form 10-K is replaced and superseded by the following:
A significant amount of our revenues has historically been due to only a small number of customers, and if we were to lose any material customer, our results of operations could be adversely affected.
The Company had three customers representing more than 10% of gross revenue, and combined 40% of revenue for the six months ended June 30, 2021. The Company had five customers representing more than 10% of gross revenue and combined 75% of revenue for the six months ended June 30, 2020.
As a result, the majority of our revenues have historically been due to only a small number of customers, and we anticipate this trend continuing moving forward. As a result, in the event our customers do not pay us amounts owed, terminate work in progress or we are unable to find new customers moving forward, it could have a materially adverse effect on our results of operations and could force us to curtail or abandon our current business operations.
The risk factor entitled “Nevada law and our articles of incorporation authorize us to issue shares of stock, which shares may cause substantial dilution to our existing stockholders.” from the Form 10-K is replaced and superseded by the following:
We have established preferred stock which can be designated by the Company’s Board of Directors without shareholder approval and the board has established Series A Preferred Stock, which gives the holders majority voting power over the Company.
We have authorized capital stock consisting of 70,000,000 shares of common stock, $0.001 par value per share and 5,000,000 shares of preferred stock, $0.001 par value per share. As of the date of this Report, we have 16,385,000 shares of common stock issued and outstanding and 1,000 shares of Series A Preferred Stock designated and issued and outstanding. The shares of preferred stock of the Company may be issued from time to time in one or more series, each of which shall have a distinctive designation or title as shall be determined by the board of directors of the Company (currently consisting solely of Elijah M) prior to the issuance of any shares thereof. The preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by the board of directors. In May 2020, we designated 1,000 shares of Series A Preferred Stock. The Series A Preferred Stock have the right, voting in aggregate, to vote on all shareholder matters equal to fifty-one percent (51%) of the total vote (the “Super Majority Voting Rights”). For example, if there are 16,385,000 shares of the Company’s common stock issued and outstanding at the time of a shareholder vote, the holders of Series A Preferred Stock, voting separately as a class, will have the right to vote an aggregate of 17,053,776 shares, out of a total number of 33,438,776 shares voting. A total 1,000 shares of Series A Preferred Stock are currently outstanding and held by Elijah May, our sole officer and director, providing him sole voting rights over the Company.
Because the board of directors is able to designate the powers and preferences of the preferred stock without the vote of a majority of the Company’s shareholders, shareholders of the Company will have no control over what designations and preferences the Company’s preferred stock will have. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to our existing stockholders. Additionally, the dilutive effect of any preferred stock, which we may issue may be exacerbated given the fact that such preferred stock may have super majority voting rights (similar to the Series A Preferred Stock) and/or other rights or preferences which could provide the preferred stockholders with voting control over us subsequent to such offering and/or give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or preferred stock may cause the value of our securities to decrease and/or become worthless.
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The risk factor entitled “Our executive officer controls a majority of our voting securities and therefore he has the ability to influence matters affecting our stockholders.” from the Form 10-K is replaced and superseded by the following:
Our sole officer and director controls a majority of our voting securities and therefore he has the ability to influence matters affecting our stockholders.
Our sole executive officer and director, Elijah May, beneficially owns approximately 59.1% of the issued and outstanding shares of our common stock and also holds all 1,000 outstanding shares of Series A Preferred Stock which have Super Majority Voting Rights. As a result, he controls approximately 79.9% of all shareholder votes. As a result, he has the ability to influence matters affecting our stockholders and will therefore exercise control in determining the outcome of all corporate transactions or other matters, including the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. Any investor who purchases shares will be a minority stockholder and as such will have little to no say in the direction of the Company and the election of directors. Additionally, it will be difficult if not impossible for investors to remove our current director, which will mean he will remain in control of who serves as officers of the Company as well as whether any changes are made in the Board of Directors (currently consisting solely of Mr. May). As a potential investor in the Company, you should keep in mind that even if you own shares of the Company’s common stock and wish to vote them at annual or special stockholder meetings, your shares will likely have little effect on the outcome of corporate decisions. Because Mr. May controls the vote on all shareholder matters, investors may find it difficult to replace our management if they disagree with the way our business is being operated. Additionally, the interests of Mr. May, may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other stockholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There have been no sales of unregistered securities during the quarter ended June 30, 2021 and from the period from July 1, 2021 to the filing date of this report, which have not previously been disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 or a Current Report on Form 8-K.
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.
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Item 5. Other Information.
The following information was required to be disclosed in a Current Report on Form 8-K during the period covered by this Form 10-Q, but was inadvertently not timely reported by the Company. Instead of filing such information on a separate Current Report on Form 8-K, we have elected to make the following disclosures in this Quarterly Report on Form 10-Q under Items 1.01 and 2.03 of Form 8-K, as applicable:
Item 1.01 Entry into a Material Definitive Agreement.
On April 26, 2021, the Company’s wholly-owned subsidiary, Reliant Custom Homes, Inc., entered into an Extension of Real Estate Note and Lien, with First United Bank and Trust Co. (“First United” and the “Extension”), which extended the Company’s prior construction loan in the amount of $221,000, which has a balance of $0. Pursuant to that agreement, the maturity date of the construction loan was extended from April 28, 2021 and October 28, 2021. There were no other changes to the terms of the loan. Amounts borrowed under the loan bear interest at the rate of 6.25%, are secured by the land on which the Company plans to build a custom home, and are guaranteed by Reliant Pools, Inc., our wholly-owned subsidiary.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information and disclosures regarding the Extension are incorporated by reference into this Item 2.03 in their entirety.
Item 6. Exhibits
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Voting Agreement, dated as of November 3, 2017, by and among Michael Chavez and Elijah May |
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Lock-Up Agreement dated January 27, 2021, between Reliant Holdings, Inc. and Michael Chavez |
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Letter to Securities and Exchange Commission from LBB & Associates Ltd., LLP, dated March 2, 2020 |
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* Filed herewith.
** Furnished Herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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RELIANT HOLDINGS, INC. |
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Date: August 16, 2021 |
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/s/ Elijah May |
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Elijah May |
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Chief Executive Officer and President |
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(Principal Executive Officer and Principal Financial/Accounting Officer) |
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