10-Q 1 rhi-10q_063018.htm QUARTERLY REPORT
 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the fiscal quarter ended June 30, 2018 

 

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 333-214274

 

RELIANT HOLDINGS, INC. 

 (Exact name of registrant as specified in its charter)  

 

Nevada 47-2200506
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)  
   

12343 Hymeadow Drive, Suite 3-A 

Austin, Texas  

78750
(Address of principal executive offices) (Zip Code)

 

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

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yes ☒  No  ☐

 

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

 

Large accelerated filer  ☐ Accelerated filer ☐ 
Non-accelerated filer ☐ Smaller reporting company ☐ 
Emerging growth  ☒  

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes  ☐  No   ☒

 

State the number of shares of the issuer’s common stock outstanding, as of the latest practicable date: 14,585,000 shares of common stock are issued and outstanding as of August 10, 2018.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I – FINANCIAL INFORMATION    
     
Item 1. Financial Statements   1
       
  Consolidated Balance Sheets (unaudited)   1
       
  Consolidated Statements of Operations (unaudited)   2
       
  Consolidated Statements of Cash Flows (unaudited)   3
       
  Notes to Consolidated Financial Statements (unaudited)   4
       
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations  
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   15 
       
Item 4. Controls and Procedures   15 
PART II – OTHER INFORMATION    
     
Item 1. Legal Proceedings   17 
       
Item 1A. Risk Factors   17 
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   17 
       
Item 3. Defaults Upon Senior Securities   17 
       
Item 4. Mine Safety Disclosures   17 
       
Item 5. Other Information   17 
       
Item 6. Exhibits   17 

  

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements 

 

Reliant Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
   June 30,   December 31, 
   2018   2017 
ASSETS        
Current Assets          
Cash  $154,921   $18,252 
Accounts receivable   909    570 
Federal income tax receivable   10,000    10,000 
Earnings in excess of billings and estimated earnings on uncompleted contracts   2,312    15,088 
Total current assets   168,142    43,910 
           
Equipment, net of accumulated depreciation of $17,424 and $14,037 at June 30, 2018 and December 31, 2017, respectively   17,502    20,889 
Total Assets  $185,644   $64,799 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current Liabilities          
Accounts payable and accrued liabilities  $91,845   $41,247 
Billings in excess of costs and estimated earnings on uncompleted contracts   75,834    36,461 
Current portion of note payable   5,862    5,736 
Due to related party   5,000    5,000 
Total current liabilities   178,541    88,444 
           
Long-term note payable, net of current portion   10,285    13,248 
           
Total Liabilities   188,826    101,692 
           
Commitments          
           
Stockholders’ Equity (Deficit)          
Common stock, 70,000,000 shares authorized, $0.001 par value, 14,585,000 issued and outstanding as of June 30, 2018 and December 31, 2017   14,585    14,585 
Additional paid-in capital   43,365    43,365 
Accumulated deficit   (61,132)   (94,843)
Total Stockholders’ Equity (Deficit)   (3,182)   (36,893)
Total Liabilities and Stockholders’ Equity (Deficit)  $185,644   $64,799 

 

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

 

1 

 

 

Reliant Holdings, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
                 
   For the three months ended   For the six months ended 
   June 30,   June 30, 
   2018   2017   2018   2017 
Revenue  $425,272   $343,301   $654,786   $587,002 
Cost of goods sold   (280,790)   (216,477)   (438,663)   (391,227)
Gross margin   144,482    126,824    216,123    195,775 
                     
Operating expenses                    
General and administrative   100,884    126,744    182,045    250,725 
                     
Total operating expenses   (100,884)   (126,744)   (182,045)   (250,725)
                     
Loss from operations   43,598    80    34,078    (54,950)
                     
Other income / (expense)                    
Interest income   14    3    20    3 
Interest expense   (186)       (387)   (579)
                     
Total other income (expense)   (172)   3    (367)   (576)
                     
Income (loss) before income taxes   43,426    83    33,711    (55,526)
                     
Provision for income tax                
                     
Net income (loss)  $43,426   $83   $33,711   $(55,526)
                     
Net income (loss) per share - basic and diluted  $0.00   $0.00   $0.00   $(0.00)
                     
Weighted average common shares outstanding   14,585,000    14,585,000    14,585,000    14,585,000 

 

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

 

2 

 

 

Reliant Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
         
   For the six months ended 
   June 30, 
   2018   2017 
Operating Activities          
Net income (loss)  $33,711   $(55,526)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation   3,387    3,387 
Accounts receivable, related party converted to compensation       10,117 
Changes in operating assets and liabilities:          
Accounts Receivable   (339)   7,764 
Costs in excess of billings   12,776    357 
Billings in excess of costs and estimated earnings on uncompleted contracts   39,373    56,495 
Accounts payable and accrued liabilities   50,598    31,117 
           
Net Cash Provided by Operating Activities   139,506    53,711 
           
Financing Activities          
Payments on note payable   (2,837)   (2,645)
Proceeds from sale of common stock, net       5,000 
Net Cash Provided By (Used In) Financing Activities   (2,837)   2,355 
           
Net change in Cash   136,669    56,066 
Cash - Beginning of Period   18,252    42,673 
Cash - End of Period  $154,921   $98,739 
           
Supplemental Disclosures          
Interest paid  $387   $508 
Income taxes paid  $   $ 

 

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

           

3 

 

 

Reliant Holdings, Inc. and Subsidiary 

Notes to the Consolidated Financial Statements

For the three and six months ended June 30, 2018 and 2017

 

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 the Company. The Company designs and installs swimming pools. 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, 2018 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, 2017 and 2016 included in our Annual Report on Form 10-K, filed with the SEC on April 13, 2018. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year.

 

New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-9, “Revenue from Contracts with Customers.” The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-9 by one year. As a result, the amendments in ASU 2014-9 are effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Additional ASUs have been issued that are part of the overall new revenue guidance, including: ASU No. 2016-8, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” and ASU 2016-12, “Narrow Scope Improvements and Practical Expedients.”

 

The new revenue recognition standard prescribes a five-step model that focuses on transfer of control and entitlement to payment when determining the amount of revenue to be recognized. The new model requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time for each of these obligations. We adopted the requirements of the new standard effective January 1, 2018 and used the modified retrospective adoption approach.

 

4 

 

 

The impact to our results is not material because the analysis of our contracts under the new revenue recognition standard supports the recognition of revenue over time under the cost-to-cost method for our construction contracts, which is consistent with our current revenue recognition model. Our construction contracts will continue to be recognized over time because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and therefore, the customer controls the asset as it is being constructed. Under the new standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs. In addition, the number of performance obligations under the new standard is not materially different from our contract segments under the existing standard. Lastly, the accounting for the estimate of variable consideration is not materially different compared to our current practice.

 

Note 2. Accounts Receivable

 

Accounts receivable consisted of the following:        
   June 30,   December 31, 
   2018   2017 

Contract receivables

  $909   $570 
Less: Allowance for doubtful accounts        
  $909   $570 

 

The Company recognized bad debt expense of $0 and $0 respectively, during the periods ended June 30, 2018 and December 31, 2017.

 

Note 3. Contracts in Process

 

The net asset (liability) position for contracts in process consisted of the following:        
   June 30,   December 31, 
   2018   2017 
Costs on uncompleted contracts  $282,956   $56,032 
Estimated earnings   139,367    27,598 
    422,323    83,630 
Less: Progress billings   (495,845)   (105,003)
   $(73,522)  $(21,373)

 

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

 

  

June 30,

2018 

  

December 31,

2017

 
Costs and estimated earnings in excess of billings on uncompleted contracts  $2,312   $15,088 
Billings in excess of costs and estimated earnings on uncompleted contracts   (75,834)   (36,461)
   $(73,522)  $(21,373)

 

5 

 

 

Note 4. Concentration of Risk

 

The Company had gross revenue of $654,786 and $587,002 for the six months ended June 30, 2018 and 2017, respectively. The Company had five customers representing more than 10% of gross revenue, and combined 73% of revenue for the six months ended June 30, 2018.

 

Note 5. Commitments

 

The Company leases approximately 1,000 square feet of office space in Austin, Texas. The lease was to expire in September 2017 with a monthly rent of $1,695. On September 5, 2017 and effective on September 30, 2017, the Company extended its office space lease from October 1, 2017 to September 30, 2018. In connection with the extension, the Company agreed to a rental increase to $1,745 per month.

 

Lease expense was $11,240 and $10,442 for the six months ended June 30, 2018 and 2017, respectively.

 

Note 6. Related Party Transactions

 

During the year ended December 31, 2017, Mr. Chavez, a significant shareholder and former Chief Executive Officer and director, advanced $5,000 to the Company. The advance is due on demand, unsecured and has no stated interest rate.

 

Note 7. Long Term Debt

 

  

June 30,

2018 

   December 31,
2017
 
Term note with a bank secured by truck, payable in monthly installments of $537, including interest at 4.35% through February 11, 2021  $16,147   $18,984 
Total long-term debt   16,147    18,984 
Less: current portion   (5,862)   (5,736)
Long-term debt net of current portion  $10,285   $13,248 

 

6 

 

 

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

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

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

 

  ●  the need for additional funding;
  ●  our lack of a significant operating history;
  ●  the fact that our sole officer and director has significant control over our voting stock;
  ●  the loss of key personnel or failure to attract, integrate and retain additional personnel;
  ●  corporate governance risks;
  ●  economic downturns;
  ●  the level of competition in our industry and our ability to compete;
  ●  our ability to respond to changes in our industry;
  ●  our ability to protect our intellectual property and not infringe on others’ intellectual property;
  ●  our ability to scale our business;
  ●  our ability to maintain supplier relationships;
  ●  our ability to obtain and retain customers;
  ●  our ability to execute our business strategy in a very competitive environment;
  ●  trends in and the market for recreational pools and services;
  ●  lack of insurance policies;
  ●  dependence on a small number of customers;
  ●  changes in laws and regulations;
  ●  the market for our common stock;
  ●  our ability to effectively manage our growth;
  ●  dilution to existing stockholders;
  ●  costs and expenses associated with being a public company;
  ●  economic downturns both in the United States and globally;
  ●  risk of increased regulation of our operations; and
  ●  other risk factors included under “Risk Factors” below and in our latest Annual Report on Form 10-K.

 

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

 

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on April 13, 2018 (the “Annual Report”). 

 

7 

 

 

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 subsidiary.

 

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 and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov. Information on our website is not part of this Report, and we do not desire to incorporate by reference such information herein. You may also read and copy any documents we file with the SEC at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You can also obtain copies of the document upon the payment of a duplicating fee to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. 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. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

 

Corporate Information

 

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

 

Organizational History

 

We were formed as a Nevada corporation on May 19, 2014. On May 23, 2014, we, along with Reliant Pools, Inc. (“Reliant Pools”) and the shareholders of Reliant Pools, entered into an Agreement for the Exchange of Common Stock (the “Exchange Agreement”). Pursuant to the Exchange Agreement, the shareholders of Reliant Pools exchanged 2.1 million shares of common stock, representing 100% of the outstanding common stock of Reliant Pools, for 2.1 million shares of our common stock (the “Exchange”). As a result of the Exchange, Reliant Pools became our wholly-owned subsidiary. The President of Reliant Pools, and its largest shareholder at the time of the Exchange was Michael Chavez, our former President. The following shares of restricted common stock were issued in connection with the Exchange: 900,000 shares of common stock to Michael Chavez, our former Chief Executive Officer and former sole director; 750,000 shares of common stock to Elijah May, our current Chief Executive Officer and sole director; and 450,000 shares of common stock to Becky Spohn, our former Controller.

 

8 

 

 

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

 

Description of Business Operations

 

 We, through our wholly-owned subsidiary, Reliant Pools (which has been in operation since September 2013), are an award winning, custom, swimming pool construction company located in the greater Austin, Texas market. In the future we plan to offer maintenance services for residential pools as well. 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.

 

Plan of Operations

 

We had negative working capital of $10,399 as of June 30, 2018. With our current cash on hand, expected revenues, and based on our current average monthly expenses, we do not 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 require additional funding in the future to expand or complete acquisitions. The sources of this capital are expected to be equity investments, notes payable and advances from our shareholders, including Michael Chavez, our former CEO and director and one of our largest shareholders. 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. As our business continues to grow, customer feedback will be integral in making small adjustments to improve the product and overall customer experience. In the event we require additional funding, we plan to raise that 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. 

 

RESULTS OF OPERATIONS

 

For the Three Months Ended June 30, 2018 Compared to the Three Months Ended June 30, 2017

 

We had revenue of $425,272 for the three months ended June 30, 2018, compared to revenue of $343,301 for the three months ended June 30, 2017, an increase of $81,971 or 24% from the prior period. Revenue increased mainly due to larger pools being completed during the current period compared to the prior period. We completed 3 pools during the three months ended June 30, 2018 compared to completing 3 pools during the three months ended June 30, 2017.  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.

 

9 

 

 

We had cost of goods sold of $280,790 for the three months ended June 30, 2018, compared to cost of goods sold of $216,477 for the three months ended June 30, 2017, an increase of $64,313 or 30% from the prior period, mainly due to the increase in revenues.

 

Cost of goods sold increased mainly due to larger pools being completed during the current period compared to the prior period along with partially offset by negotiating better steel, excavation, and gas line prices. The expenses which attributed to the increase in cost of goods sold for the three months ended June 30, 2018, compared to the three months ended June 30, 2017, included: 

 

Cost of Goods Sold Expense   For the Three
Months Ended
June 30, 2018
    For the Three
Months Ended
June 30, 2017
    Increase /
(Decrease)
    Percentage
Change
 
Cost of decking   $ 25,805     $ 30,521     $ (4,716 )     (15.5 )%
Plaster used in the construction of pools   $ 25,201     $ 21,270     $ 3,931       18.5 %
Gunite used in the construction of pools   $ 36,582     $ 26,573     $ 10,009       37.7 %
Pool equipment used to filter and circulate the water used in our pools   $ 47,432     $ 36,059     $ 11,373       31.5 %
Masonry, stone and tile installed in and around our pools and coping expenses associated therewith   $ 37,275     $ 21,273     $ 16,002       75.2 %
Excavation and steel expenses   $ 44,204     $ 39,352     $ 4,852       12.3 %
Other, including labor   $ 64,291     $ 41,429     $ 22,862       55.1 %
Total   $ 280,790     $ 216,477     $ 64,313       29.7 %

 

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

 

We had a gross margin of $144,482 for the three months ended June 30, 2018, compared to a gross margin of $126,824 for the three months ended June 30, 2017, an increase of $17,658 or 14% from the prior period due to the reasons described above. Gross margin as a percentage of revenue decreased to 34% for the three months ended June 30, 2018, compared to 37% for the three months ended June 30, 2017. The decrease in gross margin as a percentage of revenue was mainly due to an increase in labor and material costs, especially associated with masonry, plumbing and electrical.

 

We had operating expenses consisting solely of general and administrative expenses of $100,884 for the three months ended June 30, 2018, compared to operating expenses consisting solely of general and administrative expenses of $126,744 for the three months ended June 30, 2017. Operating expenses decreased due to decreased payroll, decreased legal and accounting expenditures. General and administrative expenses include the salaries of our employees, commissions and the fees paid to contract employees.

 

We had interest income of $14 for the three months ended June 30, 2018, compared to interest income of $3 for the three months ended June 30, 2017. Interest income was in connection with interest generated by funds the Company maintained in its savings account.

 

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We had interest expense of $186 and $0, for the three months ended June 30, 2018 and 2017, respectively, due, for the three months ended June 30, 2018, to interest paid in connection with the purchase of a truck used in our business, as described in greater detail under “Liquidity and Capital Resources” below.

 

We had net income of $43,426 for the three months ended June 30, 2018, compared to net income of $83 for the three months ended June 30, 2017, an increase of $43,343, mainly due to the decrease in general and administrative expenses and the increase in revenues, offset by the increase in cost of goods sold, each as described above.

 

For the Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017

 

We had revenue of $654,786 for the six months ended June 30, 2018, compared to revenue of $587,002 for the six months ended June 30, 2017, an increase of $67,784 or 12% from the prior period. Revenue increased mainly due to larger pools being completed during the current period compared to the prior period. We completed 4 pools (4 additional pools were substantially complete) during the six months ended June 30, 2018 compared to completing 8 pools during the six months ended June 30, 2017.  We recognize revenue based on the percentage that a job is complete rather than upon completion. As such total revenue recognized for each period may be different than the product of total completed pools during each period multiplied by the average pool contract price of each pool during such period, as the construction of certain pools may have started in one period and ended in another.

 

We had cost of goods sold of $438,663 for the six months ended June 30, 2018, compared to cost of goods sold of $391,227 for the six months ended June 30, 2017, an increase of $47,436 or 12% from the prior period.

 

Cost of goods sold increased mainly due to the overall increase in revenue during the current period compared to the prior period offset partially by negotiating better steel, excavation, and gas line prices. The expenses which attributed to the increase in cost of goods sold for the six months ended June 30, 2018, compared to the six months ended June 30, 2017, included: 

 

Cost of Goods Sold Expense   For the Six
Months Ended
June 30, 2018
    For the Six
Months Ended
June 30, 2017
    Increase /
(Decrease)
    Percentage
Change
 
Cost of decking   $ 39,772     $ 56,477     $ (16,705 )     (29.6 )%
Plaster used in the construction of pools   $ 30,142     $ 41,134     $ (10,992 )     (26.7 )%
Gunite used in the construction of pools   $ 65,550     $ 50,563     $ 14,987       29.6 %
Pool equipment used to filter and circulate the water used in our pools   $ 68,823     $ 50,640     $ 18,183       35.9 %
Masonry, stone and tile installed in and around our pools and coping expenses associated therewith   $ 62,260     $ 44,007     $ 18,253       41.5 %
Excavation and steel expenses   $ 65,681     $ 70,859     $ (5,178 )     (7.3 )%
Other, including labor   $ 106,435     $ 77,547     $ 28,888       37.3 %
Total   $ 438,663     $ 391,227     $ 47,436       12.1 %

 

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

 

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We had a gross margin of $216,123 for the six months ended June 30, 2018, compared to a gross margin of $195,775 for the six months ended June 30, 2017, an increase of $20,348 or 10% from the prior period due to the reasons described above. Gross margin as a percentage of revenue remained the same at 33% for both the six months ended June 30, 2018 and 2017.

 

We had operating expenses consisting solely of general and administrative expenses of $182,045 for the six months ended June 30, 2018, compared to operating expenses consisting solely of general and administrative expenses of $250,725 for the six months ended June 30, 2017. Operating expenses decreased due to decreased payroll, decreased legal and accounting expenditures. General and administrative expenses include the salaries of our employees, commissions and the fees paid to contract employees.

 

We had interest income of $20 for the six months ended June 30, 2018, compared to interest income of $3 for the six months ended June 30, 2017. Interest income was in connection with interest generated by funds the Company maintained in its savings account.

 

We had interest expense of $387 and $579, for the six months ended June 30, 2018 and 2017, respectively, due to interest paid in connection with the purchase of a truck used in our business, as described in greater detail under “Liquidity and Capital Resources” below.

 

We had net income of $33,711 for the six months ended June 30, 2018, compared to a net loss of $55,526 for the six months ended June 30, 2017, an increase in net income of $89,237, mainly due to the decrease in general and administrative expenses and the increase in revenues, offset by the increase in cost of goods sold, each as described above.

 

Liquidity and Capital Resources

 

We had total assets of $185,644 as of June 30, 2018, consisting of total current assets of $168,142, which included cash of $154,921, accounts receivable of $909, federal income tax receivable of $10,000, and earnings in excess of billings and estimated earnings on uncompleted contracts of $2,312 and equipment, net of depreciation of $17,502. Federal income tax receivable relates to a $10,000 payment made by the Company to the United States Treasury in March 2016, in anticipation of Federal income tax the Company estimated would be owed at the end of the 2016 calendar year. There was no tax due for the year ended December 31, 2016 and the Company currently estimates that it will not owe regular federal income tax for the years ended December 31, 2017 and 2018 and has recorded the payment as an asset as of June 30, 2018.

 

We had total liabilities of $188,826 as of June 30, 2018, which included total current liabilities of $178,541, consisting of accounts payable and accrued liabilities of $91,845, billings in excess of costs and estimated earnings on uncompleted jobs of $75,834, current portion of long-term note payable of $5,862 and $5,000 of related party advances relating to amounts advanced to the Company by Michael Chavez, the Company’s former Chief Executive Officer, which amount is due on demand, unsecured and has no stated interest rate, and long-term liabilities consisting of long-term note payable of $10,285, representing amounts owed in connection with the purchase of a truck used in our business. 

 

We had a working capital deficit of $10,399 as of June 30, 2018, compared to a working capital deficit of $44,534 as of December 31, 2017.

 

We had $139,506 of net cash provided by operating activities for the three months ended June 30, 2018, which was mainly due to net income of $33,711, $12,766 of increase in costs in excess of billings, $39,373 of increase in billings in excess of costs and estimated earnings on uncompleted contracts, and $50,598 of increase in accounts payable and accrued liabilities.

 

We had $2,837 of net cash used in financing activities for the three months ended June 30, 2018, which was due to payments on note payable.

 

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As of June 30, 2018, we owed $5,862 in current portion of, and $10,285 of long-term portion of, note payable, in connection with our purchase of a Ford F-150 truck for work purposes. The note payable accrues interest at the rate of 4.35% per annum and requires that we pay $537 per month until February 2021.

 

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

 

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

 

 Critical Accounting Policies:

 

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

 

Revenue Recognition

 

On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“new revenue standard”) to all contracts using the modified retrospective method. The adoption of the new revenue standard had no material impact on our 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.  

 

Performance Obligations

 

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

 

Performance Obligations Satisfied Over Time

 

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

 

Performance Obligations Satisfied at a Point in Time

 

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

 

13 

 

 

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 June 30, 2018, we had approximately $327,000 of remaining performance obligations on our construction contracts, which we also refer to as backlog. We expect to recognize our backlog as revenue during the remainder of 2018.

 

Contract Estimates

 

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

 

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

  

Variable Consideration

 

Transaction price for our contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the most likely amount to which we expect to be entitled (or the most likely amount we expect to incur in the case of liquidated damages), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue. No adjustment on any one contract was material to our consolidated financial statements for the three and six months ended June 30, 2018, and June 30, 2017.

 

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. 

 

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

 

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

 

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

 

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.

 

15 

 

 

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, 2018, based on the evaluation of these disclosure controls and procedures, our CEO and CFO has concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Exchange Act, is recorded properly, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

 

Changes in Internal Control Over Financial Reporting

 

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

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any material legal proceeding. 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, 2017, as filed with the SEC on April 13, 2018, under the heading “Item 1A. Risk Factors”, and investors should review the risks provided in the Annual Report, 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”, 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.

 

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

 

None.

 

Use of Proceeds From Sale of Registered Securities

 

None.

 

Issuer Purchases of Equity Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

 

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

 

17 

 

 

SIGNATURES

 

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

 

  RELIANT HOLDINGS, INC.
   
Date: August 10, 2018 By: /s/ Elijah May
  Elijah May
  Chief Executive Officer and President
  (Principal Executive Officer and Principal Financial/Accounting Officer)

 

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EXHIBIT INDEX

 

            Incorporated by Reference
Exhibit Number   Description of Exhibit   Filed/
Furnished Herewith
  Form   Exhibit   Filing Date/Period End Date File 
Number
2.1   Agreement for the Exchange of Common Stock dated May 23, 2014, by and between Reliant Holdings, Inc., Reliant Pools, Inc. and the shareholders of Reliant Pools, Inc.       S-1   2.1   10/27/16 333-214274
3.1   Articles of Incorporation as amended and restated       S-1   3.1   10/27/16 333-214274
3.2   Amended and Restated Bylaws       S-1   3.2   10/27/16 333-214274
10.1   Standard Form of Construction Contract       S-1   10.1   10/27/16 333-214274
10.2   Voting Agreement, dated as of November 3, 2017, by and among Michael Chavez and Elijah May       8-K   10.1   11/7/17 333-214274
10.3   Lock-Up Agreement dated November 7, 2017, between Reliant Holdings, Inc. and the shareholders name therein       8-K   10.2   11/7/17 333-214274
14.1   Code of Ethics and Code of Conduct       S-1   14.1   10/27/16 333-214274
31.1*   Certification of Principal Executive and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act   X              
32.1**   Certification of Principal Executive and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act   X              
101.INS*   XBRL Instance Document   X              
101.SCH*   XBRL Taxonomy Extension Schema Document   X              
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document   X              
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document   X              
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document   X              
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document   X              

* Filed herewith. 

** Furnished Herewith.

 

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