ONAR 10-Q
Onar Holding Corp (ONAR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal quarter ended
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
|
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
| ||
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes
State the number of shares of the issuer’s common stock outstanding, as of the latest practicable date:
TABLE OF CONTENTS
| 3 | ||
|
|
| |
| 4 | ||
|
|
|
|
| 4 | ||
|
| 4 | |
|
| 5 | |
|
| 6 | |
|
| 7 | |
|
| 8 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| 18 | |
| 26 | ||
| 26 | ||
|
|
|
|
| 26 | ||
|
|
|
|
| 27 | ||
| 27 | ||
| 29 | ||
| 29 | ||
| 29 | ||
| 29 | ||
| 30 | ||
| 2 |
| 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 the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report. These factors include:
| ● | the need for additional funding; |
| ● | the fact that we have filed periodic reports late in the past; |
| ● | our lack of a significant operating history; |
| ● | the fact that our sole officer and director has control over our voting stock; |
| ● | the loss of key personnel or failure to attract, integrate and retain additional personnel; |
| ● | corporate governance risks; |
| ● | economic downturns; |
| ● | the level of competition in our industry and our ability to compete; |
| ● | our ability to respond to changes in our industry; |
| ● | our ability to protect our intellectual property and not infringe on others’ intellectual property; |
| ● | our ability to scale our business; |
| ● | our ability to maintain supplier relationships; |
| ● | our ability to obtain and retain customers; |
| ● | our ability to execute our business strategy in a very competitive environment; |
| ● | trends in and the market for recreational pools and services; |
| ● | lack of insurance policies; |
| ● | dependence on a small number of customers; |
| ● | changes in laws and regulations; |
| ● | the market for our common stock; |
| ● | our ability to effectively manage our growth; |
| ● | dilution to existing stockholders; |
| ● | costs and expenses associated with being a public company; |
| ● | client lawsuits, damages, judgments and settlements required to be paid in connection therewith and the effects thereof on our reputation; |
| ● | health risks, economic slowdowns and recessions and other negative outcomes caused by COVID-19 and governmental responses thereto; |
| ● | increased inflation, interest rates and supply constraints, and possible recessions caused thereby; |
| ● | economic downturns both in the United States and globally; |
| ● | strategic transactions in the future which may result in a material change in our operations, board of directors, management, and/or a change of control; |
| ● | risk of increased regulation of our operations; and |
| ● | other risk factors included and discussed under “Risk Factors” below. |
You should read the matters described in “Risk Factors” and the other cautionary statements made in this Report, 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.
| 3 |
| Table of Contents |
Part I – Financial Information
Item 1. Financial Statements
Reliant Holdings, Inc. and Subsidiary | ||||||||
Consolidated Balance Sheets | ||||||||
(Unaudited) | ||||||||
|
|
|
|
| ||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Accounts receivable |
|
|
|
|
|
| ||
House and real estate inventory |
|
|
|
|
|
| ||
Contract assets |
|
|
|
|
|
| ||
Prepaid expenses |
|
|
|
|
|
| ||
Other current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Equipment, net of accumulated depreciation of $ |
|
|
|
|
|
| ||
Right-of-use asset |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total Assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ |
|
| $ |
| ||
Accrued liabilities - related parties |
|
|
|
|
|
| ||
Contract liabilities |
|
|
|
|
|
| ||
Construction loan |
|
|
|
|
|
| ||
Current portion of note payable |
|
|
|
|
|
| ||
Current portion of right-of-use liability |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Long-term note payable, net of current portion |
|
|
|
|
|
| ||
Right-of-use liability |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
Preferred stock, |
|
|
|
|
|
| ||
Preferred stock Series A, |
|
|
|
|
|
| ||
Common stock, |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||||
| 4 |
| Table of Contents |
Reliant Holdings, Inc. and Subsidiary | ||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||
(Unaudited) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| For the Three Months ended |
|
| For the Nine Months ended |
| ||||||||||
|
| September 30 |
|
| September 30 |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cost of goods sold |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Gross margin |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - basic and diluted |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding -basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||||||||||||
| 5 |
| Table of Contents |
Reliant Holdings, Inc. and Subsidiaries | ||||||||||||||||||||||||||||
Consolidated Statements of Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||
For the Nine Months Ended September 30, 2023 and 2022 | ||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated |
|
|
|
| |||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance December 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder contributions |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
Balance March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
Balance June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||||||||||||||||||||||||
| 6 |
| Table of Contents |
Reliant Holdings, Inc. and Subsidiary | ||||||||
Consolidated Statements of Cash Flows | ||||||||
(unaudited) | ||||||||
|
|
|
|
| ||||
|
| For the Nine Months Ended |
| |||||
|
| September 30 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating Activities |
|
|
|
|
|
| ||
Net income (loss) |
| $ | ( | ) |
| $ |
| |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
| ||
Depreciation |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
|
| |
Contract assets |
|
|
|
|
|
| ||
House and real estate inventory |
|
| ( | ) |
|
| ( | ) |
Prepaid and other current assets |
|
|
|
|
|
| ||
Right-of-use asset |
|
|
|
|
|
| ||
Contract liabilities |
|
| ( | ) |
|
| ( | ) |
Accounts payable and accrued liabilities |
|
|
|
|
|
| ||
Accrued liabilities - related parties |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
| ( | ) |
|
|
| |
Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from construction loan |
|
|
|
|
|
| ||
Payments on note payable |
|
| ( | ) |
|
| ( | ) |
Payments on right-of-use liability |
|
| ( | ) |
|
| ( | ) |
Contributions from shareholders |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| ( | ) |
|
|
| |
Cash - beginning of period |
|
|
|
|
|
| ||
Cash - end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosures |
|
|
|
|
|
|
|
|
Interest paid |
| $ |
|
| $ |
| ||
Income taxes paid |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash Disclosures |
|
|
|
|
|
|
|
|
Purchase of equipment with note payable |
| $ |
|
| $ |
| ||
Establishment of right-of-use asset |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements. | ||||||||
| 7 |
| Table of Contents |
Reliant Holdings, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
For the three and nine months ended September 30, 2023 and 2022
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 has built a custom home which is now for sale. The Company is headquartered in Austin, Texas. In September 2021, we formed Reliant Solar Energy, Inc., a wholly-owned Texas subsidiary.
Basis of Presentation
The financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The consolidated financial statements and related disclosures as of September 30, 2023 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, 2022 and 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on April 10, 2023. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ended December 31, 2023.
Going Concern
As shown in the accompanying consolidated financial statements, as of September 30, 2023, the Company had negative cash flows from operations, accumulated recurring losses, and $
The consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
| 8 |
| Table of Contents |
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
On January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (the “new revenue standard”) to all contracts using the modified retrospective method. The adoption of the new revenue standard had no material impact on our condensed consolidated financial statements as it did not require a change in revenue recognition. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Revenue is recognized based on the following five step model:
| - | Identification of the contract with a customer |
| - | Identification of the performance obligations in the contract |
| - | Determination of the transaction price |
| - | Allocation of the transaction price to the performance obligations in the contract |
| - | Recognition of revenue when, or as, the Company satisfies a performance obligation |
All of the Company’s revenue is currently generated from the design and installation of swimming pools. As such no further disaggregation of revenue information is provided.
Pool Sale Revenues
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
Performance Obligations Satisfied Over Time
Revenues for our contracts that satisfy the criteria for over-time recognition are recognized as the work progresses.
| 9 |
| Table of Contents |
Performance Obligations Satisfied at a Point in Time
Revenues for our contracts that do not satisfy the criteria for over-time recognition are recognized at a point in time. Substantially all of our revenue recognized at a point in time is for work performed for pool maintenance or repairs. Unlike our construction contracts that use a cost-to-cost input measure for performance, the pool maintenance or repairs utilize an output measure for performance based on the completion of a unit of work. The typical time frame for completion of these services is less than one month. Upon fulfillment of the performance obligation, the customer is provided an invoice (or equivalent) demonstrating transfer of control or completion of service to the customer. We believe that point in time recognition remains appropriate for these contracts and will continue to recognize revenues upon completion of the performance obligation and issuance of an invoice.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract.
Backlog
On September 30, 2023, we had approximately $
Contract Estimates
Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.
Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.
Variable Consideration
Transaction prices for our contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the most likely amount to which we expect to be entitled (or the most likely amount we expect to incur in the case of liquidated damages), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue. No adjustments on any one contract were material to our consolidated financial statements for the three or nine months ended September 30, 2023.
| 10 |
| Table of Contents |
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the consolidated balance sheet. On our construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs prior to revenue recognition, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.
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 $
Accounts Receivable and Allowances
The Company does not charge interest to its customers and carries its customers’ receivables at their face amounts, less an allowance for doubtful accounts. Included in accounts receivable are balances billed to customers pursuant to retainage provisions in certain contracts that are due upon completion of the contract and acceptance by the customer, or earlier as provided by the contract. Based on the Company’s experience in recent years, the majority of customer balances at each balance sheet date are collected within twelve months. As is common practice in the industry, the Company classifies all accounts receivable, including retainage, as current assets. The contracting cycle for certain long-term contracts may extend beyond one year, and accordingly, collection of retainage on those contracts may extend beyond one year.
The Company grants trade credit, on a non-collateralized basis (with the exception of lien rights against the property in certain cases), to its customers and is subject to potential credit risk related to changes in business and overall economic activity. The Company analyzes specific accounts receivable balances, historical bad debts, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In the event that a customer balance is deemed to be uncollectible, the account balance is written-off against the allowance for doubtful accounts.
Classification of Construction Contract-related Assets and Liabilities
Contract assets are presented as a current asset in the accompanying consolidated balance sheets, and contract liabilities are presented as a current liability in the accompanying consolidated balance sheets. The Company’s contracts vary in duration, with the duration of some larger contracts exceeding one year. Consistent with industry practices, the Company includes the amounts realizable and payable under contracts, which may extend beyond one year, in current assets and current liabilities. The vast majority of these balances are settled within one year.
Equipment
Equipment, consisting mainly of vehicles, is stated at cost. The Company depreciates the cost of equipment using the straight-line method over the estimated useful lives of the assets of
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.
| 11 |
| Table of Contents |
We capitalize interest cost into homebuilding inventories. Interest expense is allocated over the period based on the timing of home closings.
Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable to the home. Sales commissions are classified within selling, general, and administrative expenses. The construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid.
We assess the recoverability of our land inventory in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment.” We review our home and real estate inventory for indicators of impairment by property during each reporting period. If indicators of impairment are present for a property, generally, an undiscounted cash flow analysis is prepared in order to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, the assets are potentially impaired, requiring a fair value analysis. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. However, fair value can be determined through other methods, such as appraisals, contractual purchase offers, and other third-party opinions of value. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the nine months ended September 30, 2023 and 2022, we recorded $
Earnings (Loss) Per Share
In accordance with accounting guidance now codified as ASC Topic 260, “Earnings (Loss) per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (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 nine months ended September 30, 2023 and 2022.
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.
Reclassifications
Certain prior period amounts have been reclassified for consistency with the current period presentation.
Note 2. Accounts Receivable
Accounts receivable consisted of the following: |
|
|
|
|
|
| ||
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Contract receivables |
| $ |
|
| $ |
| ||
Less: Allowance for doubtful accounts |
|
| ( | ) |
|
| ( | ) |
Accounts receivable, net |
| $ |
|
| $ |
| ||
| 12 |
| Table of Contents |
The Company recognized no bad debt expense during the nine months ended September 30, 2023 and 2022, respectively.
Note 3. Contracts in Process
The net asset (liability) position for contracts in process consisted of the following:
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Costs on uncompleted contracts |
| $ |
|
| $ |
| ||
Estimated earnings |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Progress billings |
|
|
|
|
|
| ||
Contract liabilities, net |
| $ | ( | ) |
| $ | ( | ) |
The net asset (liability) position for contracts in process is included in the accompanying consolidated balance sheets as follows:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) |
| $ |
|
| $ |
| ||
Billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities) |
|
| ( | ) |
|
| ( | ) |
Contract liabilities, net |
| $ | ( | ) |
| $ | ( | ) |
Note 4. Concentration of Risk
The Company had gross revenue of $
Note 5. Related Party Transactions
The Company accrued bonus compensation related to services performed in the construction of the custom home to Michael Chavez, a greater than 10% shareholder of the Company, as a consultant to the Company, in the amount totaling $
In addition, during the nine months ended September 30, 2023, Mr. Chavez contributed $
The Company accrued $
| 13 |
| Table of Contents |
Note 6. Equity
Preferred Shares
On June 15, 2021, the Company issued
Common Shares
From January 2016 to September 2016, the Company sold
In September 2016, the Company discovered that the investors in the January 2016 to September 2016 offering may not have been provided all of the information and materials (including current audited financial statements), as is required under the Securities Act of 1933, as amended (the “Securities Act”) in order to claim an exemption from registration pursuant to Rule 506(b) of the Securities Act. The Company believes that all such transactions still complied with, and were exempt from registration under Section 4(a)(2) of the Securities Act because the recipients acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof; the securities were offered without any general solicitation by the Company or the Company’s representatives; no underwriters or agents were involved in the foregoing issuances and the Company paid no underwriting discounts or commissions; the securities sold are subject to transfer restrictions, and the certificates evidencing the securities (or book entry issuances) contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom; and the securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
Nevertheless, based on the above, the Company offered the January 2016 to September 2016 purchasers of the Company’s common stock the right to rescind their previous common stock acquisitions and receive, in exchange for any shares relinquished to the Company, a payment equal to their original purchase price plus interest at the applicable statutory rate in the state in which they reside. The rescission offer expired at 5:00 pm (CST) on October 26, 2016. None of the prior purchasers opted to rescind their prior purchases in connection with the rescission offer.
During the first quarter of fiscal 2017, the Company learned that in 2009, Michael Chavez, the former President and former sole director, was barred from association with any Financial Industry Regulatory Authority, Inc. (FINRA) member in any capability. Mr. Chavez similarly became aware of the FINRA bar at the same time. Pursuant to Rule 506(d), Rule 506 of the Securities Act, is not available for a sale of securities if among other persons, any director or executive officer of an issuer has been subject to certain disqualifying events after September 23, 2013, including suspension or expulsion from membership in a self-regulatory organization (SRO), such as FINRA. However, in the event the disqualifying event occurred prior to September 23, 2013, the issuer is not prohibited from relying on Rule 506, provided that pursuant to Rule 506(e) of the Securities Act, an issuer is required to furnish to each purchaser, a reasonable time prior to sale, a description in writing of any matters that would have triggered disqualification under Rule 506(d)(1), but occurred before September 23, 2013.
| 14 |
| Table of Contents |
As Mr. Chavez’s FINRA bar constituted a disqualifying event under Rule 506(d), the Company was required to furnish to each purchaser of shares of the Company, a reasonable time prior to sale, a description in writing of such event. The Company did not do that, because as described above, the Company and Mr. Chavez only became aware of the FINRA bar after the close of the offering. Notwithstanding the fact that the Company was not aware of Mr. Chavez’s FINRA bar, the Company determined that the failure to provide such information may prohibit the Company from relying on a Rule 506 exemption for the prior issuances and sales of shares. The Company believes that all such transactions still complied with, and were exempt from registration under Section 4(a)(2) of the Securities Act, because the recipients acquired the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof; the securities were offered without any general solicitation by us or the Company’s representatives; no underwriters or agents were involved in the foregoing issuances and the Company paid no underwriting discounts or commissions, the securities sold/issued were subject to transfer restrictions, and the certificates evidencing the securities (or book entry issuances) contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom; and the securities were not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
Nevertheless, management determined that the Company would offer rescission to all of its stockholders in April 2017. In connection therewith, in April 2017, the Company offered every stockholder of the Company’s common stock the right to rescind their previous purchases and acquisitions and to receive, in exchange for any shares relinquished to us, a payment equal to their original purchase price or consideration provided, plus interest at the applicable statutory rate in the state in which they reside. The rescission offer expired at 5:00 pm (CST) on April 29, 2017. None of the Company’s stockholders opted to rescind their prior purchase/acquisitions in connection with the rescission offer.
The federal securities laws and certain state securities laws do not expressly provide that a rescission offer will terminate a purchaser’s right to rescind a sale of securities that was not registered under the relevant securities laws as required. Accordingly, the Company may continue to be potentially liable under certain securities laws for the offer and sale of the shares sold and issued between May 2014 and September 2016, totaling $
This amount is recorded in equity in the accompanying balance sheets. This will be evaluated at each reporting period for reclassification to a liability if a rescission request is made.
Effective on November 3, 2017, Michael Chavez, the Company’s former sole director, Chief Executive Officer and President of the Company, entered into a Voting Agreement with Elijah May, the Company’s then Chief Operating Officer (COO), and current sole director, Chief Executive Officer and President as well as the Company’s COO (the “Voting Agreement”), resulting in a change in control of the Company.
Pursuant to the Voting Agreement, Mr. Chavez provided complete authority to Mr. May to vote the
| 15 |
| Table of Contents |
During the six months ended June 30, 2023, the Company issued
Note 7. Leases
The Company leases approximately
The components of lease expense were as follows:
|
| For the Nine |
| |||||
|
| Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Right of Use (ROU) Operating lease cost: |
|
|
|
|
|
| ||
Amortization of assets |
|
|
|
|
|
| ||
Interest on lease liabilities |
|
|
|
|
|
| ||
Total net lease cost |
| $ |
|
| $ |
| ||
Supplemental balance sheet information related to leases was as follows:
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Operating lease: |
|
|
|
|
|
| ||
ROU Real Estate Asset |
| $ |
|
| $ |
| ||
Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Right of Use, net |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Current portion of lease liabilities |
| $ |
|
| $ |
| ||
Noncurrent lease liabilities |
|
|
|
|
|
| ||
Total lease liabilities |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
Weighted average discount rate: |
|
|
|
|
|
|
|
|
Operating lease |
|
| % |
|
| % | ||
| 16 |
| Table of Contents |
Note 8. Note Payable
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Term note with a bank secured by car, payable in monthly installments of $ |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Term note with a bank secured by car, payable in monthly installments of $ |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
|
|
|
| ||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
Long-term debt net of current portion |
| $ |
|
| $ |
| ||
Note 9. Construction Loan
Effective on November 1, 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”), pursuant to which First United agreed to extend the due date of our
| 17 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
You should read the matters described 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, 2022, filed with the Securities and Exchange Commission on April 10, 2023 (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, we have not independently verified any of it, and we have not commissioned any such information.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Reliant”, “Reliant Holdings” and “Reliant Holdings, Inc.” refer specifically to Reliant Holdings, Inc. and its consolidated subsidiaries.
In addition, unless the context otherwise requires and for the purposes of this Report only:
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
Where You Can Find Other Information
We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us at http://www.sec.gov (our filings can be found at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001682265). Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report. Our website address is https://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.
| 18 |
| Table of Contents |
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:
● | Overview. Summary of our operations. | |
| ● | Plan of Operations. A description of our plan of operations for the next 12 months including required funding. |
| ● | Results of Operations. An analysis of our financial results comparing the three and nine months ended September 30, 2023 and 2022. |
| ● | Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition. |
| ● | 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. Moving forward, we may expand our custom pool construction operations locally and regionally, and nationally.
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. and is attempting to expand its operations in the Austin, Texas area as a custom home builder. To date, the Company purchased land located in Lago Vista, Texas, in the Texas Hill Country, outside of Austin, Texas, on which it has finished construction of an approximately 2,230 square foot home which it is currently marketing for sale. In April 2020, the Company obtained a construction loan for $221,000 for the construction costs associated with the build, of which $220,309 was outstanding as of September 30, 2023, which funds were used for building materials purchases. The loan was renewed on May 1, 2023 and has been extended through October 28, 2023.
The Company has listed the custom home for sale and is marketing the home, with a current offering price of $599,500; however, we may not be able to sell the home for the current offering price, the sale of the home may take longer to accomplish than expected, we may be forced to pay significant expenses paying utilities and other costs on the custom home and amounts due on the construction loan, prior to the date we can sell the home. Additionally, we may not be able to recoup our costs of construction and may be forced to sell the home at a loss.
| 19 |
| Table of Contents |
Moving forward, funding permitting, and pending the sale of our first custom home, we hope to purchase additional lots and construct additional custom homes in the future.
Plan of Operations
We had working capital of $47,617 as of September 30, 2023. 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 on which we have constructed a custom home, which we are in the process of selling. 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.
Separately, management is exploring, and we may enter into, strategic transactions in the future, as discussed in greater detail below under “Review of Strategic Alternatives”.
Results of Operations
For the Three months Ended September 30, 2023, compared to the Three months Ended September 30, 2022
We had revenue of $597,400 for the three months ended September 30, 2023, compared to revenue of $1,360,476 for the three months ended September 30, 2022, a decrease of $763,076 or 56.1% 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 decreased during the current period due to a decrease in pools completed in the current period resulting from a downturn in the demand for in ground swimming pools after the increasing interest rates and the increasing costs making pools un-affordable for most residents in the Company’s operating area.
We had cost of goods sold of $457,697 for the three months ended September 30, 2023, compared to cost of goods sold of $910,152 for the three months ended September 30, 2022, a decrease of $452,455 or 49.7% from the prior period.
Cost of goods sold decreased mainly due to the reduction in the number of pools being built. 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, cost of goods sold for the three months ended September 30, 2023, was lower than for the three months ended September 30, 2022, due to a decrease in the number of pools we were building. The expenses making up cost of goods sold for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, were as follows:
| 20 |
| Table of Contents |
Cost of Goods Sold Expense |
| For the Three Months Ended September 30, 2023 |
|
| For the Three Months Ended September 30, 2022 |
|
| Increase / (Decrease) |
|
| Percentage Change |
| ||||
Cost of decking |
| $ | 16,757 |
|
| $ | 104,811 |
|
| $ | (88,054 | ) |
|
| (84.0 | )% |
Plaster used in the construction of pools |
|
| 16,869 |
|
|
| 96,843 |
|
|
| (79,974 | ) |
|
| (82.6 | )% |
Gunite used in the construction of pools |
|
| 70,646 |
|
|
| 104,193 |
|
|
| (33,547 | ) |
|
| (32.2 | )% |
Pool equipment used to filter and circulate the water used in our pools |
|
| 59,037 |
|
|
| 145,707 |
|
|
| (86,670 | ) |
|
| (59.5 | )% |
Masonry, stone and tile installed in and around our pools and coping expenses associated therewith |
|
| 46,581 |
|
|
| 128,163 |
|
|
| (81,582 | ) |
|
| (63.7 | )% |
Excavation and steel expenses |
|
| 132,200 |
|
|
| 131,632 |
|
|
| 568 |
|
|
| 0.4 | % |
Other, including labor |
|
| 115,607 |
|
|
| 198,803 |
|
|
| (83,196 | ) |
|
| (41.8 | )% |
Total |
| $ | 457,697 |
|
| $ | 910,152 |
|
| $ | (452,455 | ) |
|
| (49.7 | )% |
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 $139,703 for the three months ended September 30, 2023, compared to a gross margin of $450,324 for the three months ended September 30, 2022, a decrease of $310,621 or 69.0% from the prior period due to the reasons described above. Gross margin as a percentage of revenue was 23.4% and 33.1% for the three months ended September 30, 2023, and 2022, respectively. Gross margin as a percentage of revenue decreased slightly due to the inability to pass increased costs on to the customers.
We had operating expenses consisting solely of general and administrative expenses of $168,628 for the three months ended September 30, 2023, compared to operating expenses consisting solely of general and administrative expenses of $211,817 for the three months ended September 30, 2022 (including $36,000 of stock-based expenses described below under “Liquidity and Capital Resources”). Operating expenses increased by $43,189 or 420.3% from the prior period.
We had interest income of $86 for the three months ended September 30, 2023, compared to interest income of $187 for the three months ended September 30, 2022. Interest income was in connection with interest generated by funds the Company maintained in its savings account.
We had interest expense of $5,140 for the three months ended September 30, 2023, compared to interest expense of $1,022 for the three months ended September 30, 2022, due to interest paid in connection with loans for Company vehicles, including a car used by our Chief Executive Officer and amounts outstanding on our construction loan, each as described in greater detail under “Liquidity and Capital Resources” below.
We had net loss of $33,979 for the three months ended September 30, 2023, compared to net income of $237,672 for the three months ended September 30, 2022, a decrease in net income of $271,651 or 114.3%, mainly due to the $706,055 decrease in revenues, offset by the $452,455 decrease in cost of goods sold, each as described above.
| 21 |
| Table of Contents |
For the Nine months Ended September 30, 2023, compared to the Nine months Ended September 30, 2022
We had revenue of $1,773,539 for the nine months ended September 30, 2023, compared to revenue of $3,438,580 for the nine months ended September 30, 2022, a decrease of $1,665,041 or 48.4% 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 decreased during the current period due to a decrease in pools completed in the current period resulting from a downturn in the demand for in ground swimming pools after the increasing interest rates and the increasing costs making pools un-affordable for most residents in the Company’s operating area.
We had cost of goods sold of $1,186,669 for the nine months ended September 30, 2023, compared to cost of goods sold of $2,458,261 for the nine months ended September 30, 2022, a decrease of $1,271,592 or 51.7% from the prior period.
Cost of goods sold decreased mainly due to the reduction in the number of pools being built. 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 nine months ended September 30, 2023, were lower than for the nine months ended September 30, 2022, due to a decrease in the number of pools we were building. The expenses making up cost of goods sold for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, were as follows:
Cost of Goods Sold Expense |
| For the Nine months Ended September 30, 2023 |
|
| For the Nine months Ended September 30, 2022 |
|
| Increase / (Decrease) |
|
| Percentage Change |
| ||||
Cost of decking |
| $ | 99,158 |
|
| $ | 280,325 |
|
| $ | (181,167 | ) |
|
| (64.6 | )% |
Plaster used in the construction of pools |
|
| 119,032 |
|
|
| 170,099 |
|
|
| (51,067 | ) |
|
| (30.0 | )% |
Gunite used in the construction of pools |
|
| 115,006 |
|
|
| 259,232 |
|
|
| (144,226 | ) |
|
| (55.6 | )% |
Pool equipment used to filter and circulate the water used in our pools |
|
| 166,851 |
|
|
| 378,315 |
|
|
| (211,464 | ) |
|
| (55.9 | )% |
Masonry, stone and tile installed in and around our pools and coping expenses associated therewith |
|
| 132,480 |
|
|
| 387,845 |
|
|
| (255,365 | ) |
|
| (65.8 | )% |
Excavation and steel expenses |
|
| 177,495 |
|
|
| 321,285 |
|
|
| (143,790 | ) |
|
| (44.8 | )% |
Other, including labor |
|
| 376,647 |
|
|
| 661,160 |
|
|
| (284,513 | ) |
|
| (43.0 | )% |
Total |
| $ | 1,186,669 |
|
| $ | 2,458,261 |
|
| $ | (1,271,592 | ) |
|
| (51.7 | )% |
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.
| 22 |
| Table of Contents |
We had a gross margin of $586,870 for the nine months ended September 30, 2023, compared to a gross margin of $980,319 for the nine months ended September 30, 2022, a decrease of $393,449 or 40.1% from the prior period due to the reasons described above. Gross margin as a percentage of revenue was 33.1% and 28.5% for the nine months ended September 30, 2023, and 2022, respectively. Gross margin as a percentage of revenue increased due to a slight decrease in average cost of our pools.
We had operating expenses consisting solely of general and administrative expenses of $642,529 for the nine months ended September 30, 2023, compared to operating expenses consisting solely of general and administrative expenses of $626,748 for the nine months ended September 30, 2022 (including $36,000 of stock-based expenses described below under “Liquidity and Capital Resources”). Operating expenses increased by $15,781 or 2.5% from the prior period mainly due to increased professional fees and stock-based compensation, offset by a reduction in marketing expenses.
We had interest income of $612 for the nine months ended September 30, 2023, compared to interest income of $393 for the nine months ended September 30, 2022. Interest income was in connection with interest generated by funds the Company maintained in its savings account.
We had interest expense of $8,862 for the nine months ended September 30, 2023, compared to interest expense of $2,681 for the nine months ended September 30, 2022, due to interest paid in connection with loans for Company vehicles, including a car used by our Chief Executive Officer and amounts outstanding on our construction loan, each as described in greater detail under “Liquidity and Capital Resources” below.
We had net loss of $63,909 for the nine months ended September 30, 2023, compared to net income of $351,283 for the nine months ended September 30, 2022, a decrease in net income of $287,374 or 81.8%, mainly due to the $1,608,020 decrease in revenue and the $30,003 increase in general and administrative expenses, offset by the $1,271,592 decrease in cost of goods sold, each as described above.
Liquidity and Capital Resources
We had total assets of $703,989 as of September 30, 2023, consisting of total current assets of $661,684, which included cash of $215,589, accounts receivable of $1,500, house and real estate inventory of $439,158, prepaid expenses of $4,032 and other current assets of $1,405, and equipment, net of accumulated depreciation, of $31,173 and right-of-use asset of $11,132. Included in real estate inventory as of September 30, 2023, is the value of the land and construction costs incurred to date, which the Company acquired in the third quarter of 2019, and is currently marketing the completed home, as discussed above. Contract assets include estimated earnings in excess of billings on uncompleted contracts. Equipment relates to the vehicle discussed below. Total cash decreased from $282,621 as of December 31, 2022, to $215,589 as of September 30, 2023, due to funding of operations with cash on hand while the Company continues to generate additional pool contracts.
We had total liabilities of $624,067 as of September 30, 2023, all of which are current liabilities, including accounts payable and accrued liabilities of $91,848, related party accrued liabilities of $53,500, contract liabilities, relating to billings in excess of costs and estimated earnings on uncompleted jobs of $243,960, current portion of note payable of $3,206, construction loan of $220,309, and current portion of right-of-use liability of $11,244.
The Company accrued bonus compensation to Michael Chavez related to service performed in the construction of the custom home, a greater than 10% shareholder of the Company, as a consultant to the Company, in the amount totaling $18,000 and $54,000, for the nine months ended September 30, 2023 and 2022, respectively. In addition, during the three months ended June 30, 2023, the Company paid $50,000 of the accrued bonus compensation to Mr. Chavez. As of September 30, 2023, the Company has accrued a total of $16,000 in accrued bonus compensation, which is included in accrued liabilities related parties on the Company’s balance sheet.
| 23 |
| Table of Contents |
The Company accrued $37,500 in commission expenses to its CEO and sole board member, Mr. May, for services performed during the nine months ended September 30, 2023. As of September 30, 2023, the Company has accrued a total of $37,500 in accrued commission compensation.
On February 11, 2020, we purchased a Hyundai Genesis G80. The Vehicle had a total purchase price of $50,616, including $11,000 which was paid as a down payment in cash. We entered into a term note, secured by the vehicle, for the remaining amount of the purchase price, which amount accrues interest at the rate of 3.99% per annum and is payable at the rate of $660 per month through maturity on February 27, 2025.
On October 26, 2021, we purchased a Nissan Rogue for use by Mr. May. The vehicle had a total purchase price of $29,931, including $10,000 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 6.54% per annum and is payable at the rate of $336 per month through maturity on May 26, 2027.
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 up to $221,000, bears interest at the rate of 6.25% per annum and is currently due on April 28, 2024. As of September 30, 2023, a total of $220,309 was outstanding on the loan.
We had working capital of $37,617 as of September 30, 2023, compared to working capital of $36,255 as of December 31, 2022. Working capital increased as of September 30, 2023, compared to December 31, 2022, due to the reduction in net contract liabilities and increase in house and real estate, offset by the increase in accounts payable and accrued liabilities. We had cash of $215,589 as of September 30, 2023, compared to cash of $282,621 as of December 31, 2022.
|
| For the Nine Months Ended |
| |||||
|
| September 30 |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net cash provided by (used in) operating activities |
|
| (75,995 | ) |
|
| 59,177 |
|
Net cash provided by financing activities |
|
| 8,963 |
|
|
| 74,912 |
|
Net change in cash |
|
| (67,032 | ) |
|
| 134,089 |
|
We had $75,995 of net cash used in operating activities for the nine months ended September 30, 2023, as compared to $59,177 of net cash provided by operating activities for the nine months ended September 30, 2022. Net cash used in operating activities for the 2023 period was mainly due to $100,084 of increase in house and real estate inventory and $92,413 of decrease in contract liabilities, offset by $58,602 of increase in accounts payable and accrued liabilities and $30,571 of decrease in contract assets. Net cash provided by operating activities for the 2022 period was mainly due to $351,283 of net income, offset by an increase of $175,907 in house and real estate inventory and a $160,537 decrease in contract liabilities.
We had $8,963 of net cash provided by financing activities for the nine months ended September 30, 2023, which was mainly due to $33,905 of proceeds from our construction loan offset by $9,288 of payments on the notes payable related to our vehicle loans and $21,479 of payments on right-of-use liability, as compared to $74,912 of cash used in financing activities for the nine months ended September 30, 2022, which was mainly due to $102,177 of proceeds from our construction loan offset by $15,293 of payments on the notes payable related to our vehicle loans and $11,972 of payments on right-of-use liability.
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.
| 24 |
| Table of Contents |
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.
Review of Strategic Alternatives
The costs and expenses of our public reporting obligations are material, and materially affect our quarterly results of operations and profitability. As a result, the Company has initiated a formal review process to evaluate strategic alternatives for the Company. Mr. May, as sole officer and director, is committed to acting in the best interests of the Company, its stockholders and its stakeholders.
In the future, we or our majority stockholders (including Elijah May, our sole officer and director and Michael Chavez, a significant shareholder of the Company), may enter into transactions with parties seeking to merge and/or acquire us and/or our operations. While we have not entered into any agreements or understandings with any such parties to date, in the event that we do enter into such a transaction or transactions in the future, our majority stockholders will likely change and new shares of common stock or preferred stock could be issued resulting in substantial dilution to our then current stockholders. As a result, our new majority stockholders may change the composition of our Board of Directors (currently consisting solely of Mr. May) and replace our current management. Any future transaction may also result in a change in our business focus. We have not entered into any definitive agreements relating to any strategic transaction involving the Company as of the date of this filing and may not enter into such agreements in the future. Any future strategic transaction involving the Company or its operations may have a material effect on our operations, cash flows, results of operations, prospects, plan of operations, the quotation of our common stock on the OTCQB Market, our officers, directors and majority stockholders, and ultimately the value of our securities.
There is no deadline or definitive timetable set for completion of the strategic alternatives review process and there can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome. The Company does not intend to make any further public comment regarding the review of strategic alternatives until it has been completed or the Company determines that a disclosure is required by law or otherwise deemed appropriate.
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 and Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Part II, Item 8, of the 2022 Annual Report, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements.
| 25 |
| Table of Contents |
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, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, 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.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management, with the participation of our Chief Executive Officer (our Principal Executive Officer and Principal Financial Officer), carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2023, as required by Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the evaluation described above, our management, including our Principal Executive Officer and Principal Financial Officer, concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective.
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 quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness in Internal Controls Over Financial Reporting
We identified a material weakness in our internal control over financial reporting that exists as of September 30, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We determined that we had a material weakness because, due to our small size, and our limited number of personnel, we did not have in place an effective internal control environment with formal processes and procedures, to allow for a detailed review of accounting transactions that would identify errors in a timely manner.
Notwithstanding the material weaknesses in our internal control over financial reporting, we have concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
| 26 |
| Table of Contents |
Part Ii – Other Information
Item 1. Legal Proceedings
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any material legal proceeding. In addition, we are not aware of any material legal or governmental proceedings against us or contemplated to be brought against us.
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, 2022, as filed with the SEC on April 10, 2023, under the heading “Item 1A. Risk Factors”, except as discussed below, and investors should review the risks provided in the Annual Report, and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report, under “Item 1A. Risk Factors”, and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
Adverse macro-economic conditions, including inflation and high interest rates, have in the past, and could in the future, adversely impact our operating results.
Heightened levels of inflation and the potential worsening of macro-economic conditions, including slower growth or recession, changes to fiscal and monetary policy, tighter credit, higher interest rates and currency fluctuations, present a risk for us, our suppliers and the stability of our industry. We believe our revenues decreased for the three and nine months ended September 30, 2023, mainly as a result of decreased demand for pools resulting from increasing interest rates and increasing costs of pool construction, making pools un-affordable for most residents in the Company’s operating area. If inflation and interest rates remain at current levels for an extended period, or increase even further, and we are unable to successfully mitigate the impact, our costs are likely to increase, resulting in pressure on our profits, margins and cash flows, and we expect continued and/or further declines in demand for pool construction services. Any of the above may have a material adverse effect on our results of operations and the value of our securities.
We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements, a failure to meet our reporting and financial obligations, loss of revenue and theft, and such failure to maintain ineffective controls and procedures has already resulted in, and may in the future result in, a non-approved transaction, which could have a material adverse effect on our financial condition and the trading price of our common stock.
Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. As reported under “Item 4. Controls and Procedures”, as of September 30, 2023, our Chief Executive Officer has determined that our disclosure controls and procedures were not effective. Separately, as of September 30, 2023, management has identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We determined that we had a material weakness because, due to our small size, and our limited number of personnel, and because we did not have in place an effective internal control environment with formal processes and procedures, to allow for a detailed review of accounting transactions that would identify errors in a timely manner. Separately, the Company did not implement appropriate approval requirements for non-routine transactions.
| 27 |
| Table of Contents |
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
The Company has in the past, and may in the future, be subject to non-routine transactions that were not pre-approved by management. Such transactions may result in material losses, unrecoverable payments, significant decreases in assets and working capital, and ultimately result in a material adverse effect on the Company, its operations and results, any of which may cause the value of the Company’s securities to decline in value or become worthless.
Maintaining effective disclosure controls and procedures and effective internal control over financial reporting are necessary for us to produce reliable financial statements and the Company is committed to remediating its material weaknesses in such controls as promptly as possible. However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock, and/or result in litigation against us or our management. In addition, even if we are successful in strengthening our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or facilitate the fair presentation of our financial statements or our periodic reports filed with the SEC.
We may not be able to sell our customer home for the price sought, and we may lose money on the sale of our custom home.
To date we have completed the construction of our first custom home located in Lago Vista, Texas. We are currently in the process of marketing the custom home for sale, at a current purchase price of $599,500. We originally listed the house in August 2023 for $645,000 and have reduced our offering price by $45,500 through the date of this Report. We may not be able to sell the home for the current offering price, the sale of the home may take longer to accomplish than expected, we may be forced to pay significant expenses paying utilities and other costs on the custom home and amounts due on the construction loan, prior to the date we can sell the home. Additionally, we may not be able to recoup our costs of construction and may be forced to sell the home at a loss. Any of the above may have a material adverse effect on our results of operations and the value of our securities.
We may enter into strategic transactions in the future which may result in a material change in our operations and/or a change of control.
The costs and expenses of our public reporting obligations are material, and materially affect our quarterly results of operations and profitability. In the future, we or our majority stockholders, may enter into transactions with parties seeking to merge and/or acquire us and/or our operations. While we have not entered into any agreements or understandings with any such parties to date, in the event that we do enter into such a transaction or transactions in the future, our majority stockholders will likely change and new shares of common stock or preferred stock could be issued resulting in substantial dilution to our then current stockholders. As a result, our new majority stockholders may change the composition of our Board of Directors (currently consisting solely of Mr. May) and replace our current management. Any future transaction may also result in a change in our business focus. We have not entered into any agreements relating to any strategic transaction involving the Company as of the date of this filing and may not enter into such agreements in the future. There is no deadline or definitive timetable set for completion of the strategic alternatives review process and there can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome. The Company does not intend to make any further public comment regarding the review of strategic alternatives until it has been completed or the Company determines that a disclosure is required by law or otherwise deemed appropriate. Any future strategic transaction involving the Company or its operations may have a material effect on our operations, cash flows, results of operations, prospects, plan of operations, the listing of our common stock on the OTCQB Market, our officers, directors and majority stockholders, and the value of our securities.
| 28 |
| Table of Contents |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
There have been no sales of unregistered securities during the quarter ended September 30, 2023 and from the period from October 1, 2023 to the filing date of this Report.
Use of Proceeds From Sale of Registered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
| 29 |
| Table of Contents |
Item 6. Exhibits
Exhibit |
| Filed/ Furnished | Incorporated By Reference | ||||||||||
Number |
| Description of Exhibit |
| Herewith | Form |
| Exhibit | Filing Date |
| File Number |
| ||
|
|
| S-1 |
| 3.1 |
| 10/27/2016 |
| 333-214274 | ||||
|
|
| 8-K |
| 3.1 |
| 6/17/2021 |
| 000-56012 | ||||
|
|
| S-1 |
| 3.2 |
| 10/27/2016 |
| 333-214274 | ||||
|
|
| S-1 |
| 10.1 |
| 10/27/2016 |
| 333-214274 | ||||
| Voting Agreement, dated as of November 3, 2017, by and among Michael Chavez and Elijah May |
|
| 8-K |
| 10.1 |
| 11/7/2017 |
| 333-214274 | |||
|
|
| 10-Q |
| 10.7 |
| 5/19/2020 |
| 000-56012 | ||||
|
|
| 10-Q |
| 10.8 |
| 5/19/2020 |
| 000-56012 | ||||
|
|
| 10-Q |
| 10.9 |
| 5/19/2020 |
| 000-56012 | ||||
|
|
| 10-Q |
| 10.1 |
| 5/19/2020 |
| 000-56012 | ||||
|
|
| 10-Q |
| 10.11 |
| 5/19/2020 |
| 000-56012 | ||||
|
|
| 8-K |
| 10.2 |
| 6/17/2021 | 000-56012 |
| ||||
| Form of 2021 Equity Incentive Plan Option Award Grant Agreement |
|
| S-8 |
| 4.1 |
| 8/3/2021 | 333-258392 |
| |||
| Form of 2021 Equity Incentive Plan Restricted Stock Grant Agreement |
|
| S-8 |
| 4.2 |
| 8/3/2021 | 333-258392 |
| |||
| 30 |
| Table of Contents |
|
|
|
| 10-Q |
| 10.13 | 8/16/2021 |
| 000-56012 |
| |||
|
|
|
| 10-K |
| 10.14 |
| 4/13/2022 |
| 000-56012 |
| ||
|
|
|
| 10-Q |
| 10.15 |
| 5/18/2022 |
| 000-56012 |
| ||
|
|
| 10-K |
| 10.16 |
| 4/10/2023 |
| 000-56012 |
| |||
|
|
| 10-Q |
| 10.17 |
| 05/15/2023 |
| 000-56012 |
| |||
|
| ☒ |
|
|
|
|
|
|
| ||||
|
| ☒ |
|
|
|
|
|
| |||||
101.INS* |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| ☒ |
|
|
|
|
|
|
| ||
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
| ☒ |
|
|
|
|
|
|
| ||
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| ☒ |
|
|
|
|
|
|
| ||
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
| ☒ |
|
|
|
|
|
|
| ||
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
| ☒ |
|
|
|
|
|
|
| ||
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| ☒ |
|
|
|
|
|
|
| ||
104* |
| Inline XBRL for the cover page of this Annual Report on Form 10-K included in the Exhibit 101 Inline XBRL Document Set |
| ☒ |
|
|
|
|
|
|
|
* Filed herewith.
** Furnished Herewith.
† Exhibit constitutes a management contract or compensatory plan or agreement.
| 31 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| RELIANT HOLDINGS, INC. |
| |
|
|
|
|
Date: December 12, 2023 | By: | /s/ Elijah May |
|
|
| Elijah May |
|
|
| Chief Executive Officer and President |
|
|
| (Principal Executive Officer and Principal Financial/Accounting Officer) |
|
| 32 |