Reliant Holdings (RELT) Risk Analysis

Home warranty and construction defect claims are common in the homebuilding industry and can be costly. Certain claims may not be covered by insurance or may exceed applicable coverage limits, which could be material to our financial results.

We are largely dependent upon the personal efforts and abilities of our existing management, currently consisting solely of Elijah May (President and Chief Operating Officer and sole member of the Board of Directors), who plays an active role in our operations. Moving forward, should the services of Mr. May be lost for any reason, the Company will incur costs associated with recruiting replacements and any potential delays in operations which this may cause. If we are unable to replace such individual with a suitably trained alternative individual(s), we may be forced to scale back or curtail our business plan. We do not currently have any employment agreements or maintain key person life insurance policies on our executive officer. If our executive officer does not devote sufficient time towards our business, we may never be able to effectuate our business plan.

We plan to rely on subcontractors to perform the actual construction of our custom home, and in many cases, to select and obtain building materials. Despite detailed specifications and quality control procedures, in some cases, subcontractors may use improper construction processes or defective materials. Defective products can result in the need to perform extensive repairs. The cost of complying with our warranty obligations may be significant if we are unable to recover the cost of repairs from subcontractors, materials suppliers and insurers. We may also suffer damage to our reputation, and may be exposed to possible liability, if subcontractors fail to comply with applicable laws, including laws involving things that are not within our control.

In order for us to remain in compliance with our on-going reporting requirements, we may require additional capital and/or future revenues to cover the cost of these filings, which could comprise a substantial portion of our available cash resources, or require us to obtain additional capital through the sale of equity or debt. If we are unable to further capitalize the Company or generate sufficient revenues to remain in compliance, it may be difficult for you to resell any shares you may purchase, if at all. There are ongoing costs and expenses for SEC reporting, including the general booking and accounting costs for the preparation of the financial quarterly (Form 10-Qs) and annual filings (Form 10-Ks), and auditor's fees. Further, there are processing costs in preparing and converting documents and disclosures through the EDGAR filing system, including certain costs for the XBRL that are required as part of the EDGAR filing. We estimate that these costs could result in up to $75,000 per year of initial ongoing costs.

The housing industry is highly competitive. We plan to compete in such industry with national, regional and local developers and homebuilders, resale of existing homes, condominiums and available rental housing. Some of our competitors have significantly greater financial resources and some may have lower costs than we do. Competition among homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, amenities, design, innovation, quality and price. Competition is expected to be intense. If we are unable to successfully compete, our financial results and growth could suffer.

Defaults by any of our customers could have a significant adverse effect on our revenues, profitability and cash flow, which may be exacerbated by the fact that we have a limited number of customers. Our customers may in the future default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons deriving from the current general economic environment. If a customer defaults on its obligations to us, it could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Prior lawsuits, settlements and judgments and/or a failure to meet customer specifications or expectations could result in lost revenues, increased expenses, negative publicity, claims for damages and harm to our reputation. Two of our former customers previously filed lawsuits against us claiming breach of contract and alleged defects in the pools we built. In September and October 2020, we entered into separate agreements with each of the former customers (including a settlement in principle with one of the former customers) to settle the lawsuits in consideration for an aggregate of $420,000. Such claims by former customers, settlements or judgments and/or settlements in such litigation and/or a failure or inability by us to meet a future client's expectations could damage our reputation and adversely affect our ability to attract new business and result in delayed or lost revenue. In the event the pools we complete are not up to the expectations and standards of our clients, we face negative publicity and our reputation could be hurt. Furthermore, we may be sued or unable to collect accounts receivable if a future client is not satisfied with our services. In addition, any failure to meet customers' specifications or expectations could result in: - delayed or lost revenue;- requirements to provide additional services to a customer at reduced charges or no charge (including, but not limited to extended warranties); and - claims by customers for substantial damages against us, regardless of our responsibility for such failure, which may not be covered by insurance policies and which may not be limited by contractual terms. The following new risk factors supplement the risk factors included in the Form 10-K: Our operations may be adversely affected by global epidemics, pandemics and similar health issues. Our business may be materially and adversely disrupted by the present outbreak and worldwide spread of COVID-19, including measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it. An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on our consolidated financial statements. On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and several states and municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including quarantines, and "stay-at-home" orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Specifically, Travis County and Austin, Texas, where the Company operates, issued "stay-at-home" and social distancing orders beginning in mid-April 2020, which have continued in effect through the filing date of this report. To date, we have not experienced any material negative effects from, or declines in business relating to, COVID-19 and/or Travis County, Texas's response to the coronavirus, which has included "stay-at-home" and social distancing orders. However, the Company has had issues with sub-contractors coming down with COVID-19 which has caused construction delays and has further seen delays in permitting caused by COVID-19 issues. Furthermore, there is a risk that city inspections cease altogether for a period of time as a result of potential future COVID-19 ‘stay-at-home' orders, although none are currently planned. Notwithstanding the above, the demand for pools remains high in Austin and surrounding areas. Notwithstanding that, we are uncertain of the potential full magnitude or duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, which include, among other things, significant volatility in financial markets and a sharp decrease in the value of equity securities, including our common stock. In addition, we can provide no assurance as to whether the COVID-19 public health effort will be intensified to such an extent that we will not be able to conduct any business operations at all for an indefinite period. Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 decrease consumer confidence generally or with respect to constructing a pool and/or purchasing a home; cause civil unrest; or precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products; impair our ability to sell and build pools in a typical manner or at all, generate revenues and cash flows, and/or access to lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business; increase the costs or decrease the supply of building materials or the availability of subcontractors and other talent, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts. The inherent uncertainty surrounding COVID-19, due in part to rapidly changing governmental directives, public health challenges and progress, and market reactions thereto, also makes it more challenging for our management to estimate the future performance of our business and develop strategies to generate growth or achieve our initial or any revised objectives for 2020 and into 2021. Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, decreases in new pool contracts, pools built, average selling prices, revenues and net income, and such impacts could be material to our consolidated financial statements. In addition, should the COVID-19 public health effort intensify to such an extent that we cannot operate at all, we may generate few or no new pool contracts and/or completed pools during the applicable period, which could be prolonged. Along with a potential increase in cancellations of pool contracts, if there are prolonged government restrictions on our business and our customers, and/or an extended economic recession, we could be unable to produce revenues and cash flows sufficient to operate our business. Such a circumstance could, among other things, exhaust our available liquidity (and ability to access liquidity sources), which could cause the value of our common stock to decline in value or become worthless. We may not qualify for forgiveness of our PPP Loan. We face risks associated with such PPP Loan. On May 11, 2020, we (through Reliant Pools) received a loan (the "Loan") from Wells Fargo Bank N.A. (the "Lender") in the principal amount of $51,113, pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which was enacted on March 27, 2020. The Loan is evidenced by a promissory note (the "Note"), dated effective May 4, 2020, issued by the Company to the Lender. The Note is unsecured, matures on May 4, 2022 and bears interest at a rate of 1.00% per annum, payable monthly commencing on November 2, 2020, following an initial deferral period as specified under the PPP. The Note may be prepaid at any time prior to maturity with no prepayment penalties. Proceeds from the Loan will be available to the Company to fund designated expenses, including certain payroll costs, rent, utilities and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest may be forgiven to the extent Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration under the PPP (including that up to 60% of such Loan funds are used for payroll). The Company intends to use the entire PPP Loan amount for designated qualifying expenses and to apply for forgiveness of the respective PPP Loan in accordance with the terms of the PPP. Notwithstanding that, the Company may not qualify for forgiveness of the PPP Loan in whole or part and may be required to repay such PPP Loan in full. With respect to any portion of the PPP Loan that is not forgiven, the PPP Loan will be subject to customary provisions for a loan of this type, including customary events of default. In the event the PPP Loan is not forgiven, the debt service payments on such loan may negatively affect our ability to grow our operations, service other debt and/or pay our expenses as they come due. Furthermore, any default under the PPP Loan may require us to pay a significant amount of our available cash and/or cash flow to service such debt, which could have a material adverse effect on our operations. Any failure of the PPP Loan to be forgiven pursuant to its terms, and/or our requirement to repay the PPP Loan in whole or part, could cause the value of our common stock to decline in value. We will need additional capital which may not be available on commercially acceptable terms, if at all, which raises questions about our ability to continue as a going concern. We had a working capital deficit of $209,336 as of September 30, 2020. With our current cash on hand, expected revenues, and based on our current average monthly expenses, we anticipate the need for additional funding in order to continue our operations at their current levels, to pay the costs associated with being a public company, for the next 12 months, and to satisfy settlements of outstanding claims brought by a former customer of us as described under "Part I" - "Item 1. Financial Statements" in the Notes to Consolidated Financial Statements in "Note 6. Commitments and Contingencies" hereof. We may also require additional funding in the future to expand or complete acquisitions. We plan to raise such additional funding through the sale of debt or equity, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues. Furthermore, in order to pay amounts owed in connection with proposed settlements, we may be forced to liquidate assets and/or abandon certain of our business plans. If we are unable to pay such amounts, we may be forced to cease operations and/or seek bankruptcy protection. These conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The financial statements included herein also include a going concern footnote from our auditors. Additionally, on April 28, 2020, the Company (through Reliant Custom Homes) secured a construction loan from First United Bank and Trust Co. to be used to develop the land purchased in the third quarter of 2019, which loan provides for funding to be advanced from time to time pursuant to the requirements of the loan for the construction of a custom home. The loan is in the amount of $221,000 and bears interest at the rate of 6.25% per annum (18% upon the occurrence of an event of default). The loan is guaranteed by Reliant Pools and the Company and the land is pledged as collateral for security of the payment of the construction loan pursuant to a deed of trust. The loan matures on April 28, 2021. The loan agreement contains covenants and restrictions on us and our construction of the property and standard and customary events of default. The loan may be prepaid at any time without penalty. As of September 30, 2020, and through the date of this filing, no amount had been advanced under this loan. Payments under the loan may decrease cash available for other expenses and our failure to pay the loan when due may have a material adverse effect on our operating results, ability to continue our business operations and the value of our securities. The repayment of the loan is secured by a security interest on our property and the home and is guaranteed by the Company and Reliant Pools. Our failure to comply with the terms of the loan may result in the lender foreclosing on the property and the home, or seeking to enforce the guarantees, which may have a material adverse effect on our assets and the value of our securities, and may force us to abandon our plans to develop a custom home.

Our results of operations could be harmed if the fear of communicable and rapidly spreading diseases or other crises such as natural disasters result in the inability of our contractors to perform construction services and/or prevent our sales persons from selling pools. It is difficult to predict the impact on our business of the emergence of new epidemics or other crises. We currently anticipate that the outbreak of the 2019-2020 Wuhan, China coronavirus, the global and U.S. response to such coronavirus, including travel restrictions and quarantines that governments are instituting, will have a significant negative impact on our results of operations for 2020 due to anticipated declines in the U.S. economy, our ability to timely obtain supplies and the availability of contractors and subcontractors. Currently, we are experiencing reductions to, and interruptions in, the delivery of building supplies that we anticipate will have a negative impact on our first quarter 2020 revenues and which are expected to continue to have an adverse effect on revenues moving into the second quarter and beyond. In addition, employee sicknesses and remote working environments related to the coronavirus and the federal, state and local responses to such virus, are likely to materially negatively impact our consolidated results for the first quarter and full year for 2020. To date we have experienced significant declines in March 2020 business due to the coronavirus and Travis County, Texas's response to the coronavirus, which includes issuing shelter-in-place orders.  We currently anticipate such declines to continue for the foreseeable future, which declines will have a significant negative impact on first quarter 2020, and likely second quarter 2020, financial results, at a minimum.  Further impacts of the coronavirus and the government's response to such virus cannot be predicted at this time but may result in further negative impacts on our operating results, cash flow and prospects, all of which may cause the value of our securities to decline in value.

We are subject to extensive and complex regulations that affect land development and home construction, including zoning, design and building standards as well as rules and regulations concerning land use and the protection of health and the environment including those governing the discharge of pollutants to water and air, the handling of hazardous materials and the cleanup of contaminated sites. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water and sewage facilities and other local services. The particular impact and requirements of environmental regulations vary greatly according to the site, the site's environmental conditions and the present and former use of the site. We expect that increasingly stringent requirements will be imposed on construction companies in the future. Regulatory issues and environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict projects in certain environmentally sensitive regions or areas. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials. Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations. Finally, while we currently pass the costs of permitting and compliance on to our customers, if such costs increase in the future, customers may be unwilling to pay such costs, and it could result in a decrease in demand for our services or our margins.