10-K: Reliant Holdings, Inc. Reports Mixed Results in 2023 Annual Filing

Reliant Holdings, Inc. experienced a significant decrease in revenue and net income in 2023, alongside identified material weaknesses in internal controls.

Summary

• Reliant Holdings, Inc. reported a decrease in revenue from $4,616,404 in 2022 to $2,454,802 in 2023, a 46.8% decrease.
• The company's net income also decreased significantly from $333,876 in 2022 to $33,615 in 2023, an 89.9% decrease.
• Cost of goods sold decreased by 52.4% from $3,324,213 in 2022 to $1,582,809 in 2023, primarily due to a reduction in the number of pools being built.
• Gross margin decreased by 32.5% from $1,292,191 in 2022 to $871,993 in 2023.
• Operating expenses decreased by 12.6% from $940,978 in 2022 to $822,485 in 2023, mainly due to decreased compensation expenses.
• The company had a working capital of $133,503 as of December 31, 2023.
• The company identified a material weakness in its internal control over financial reporting.
• As of December 31, 2023, the company had approximately $772,524 of remaining performance obligations on its construction contracts, which is also referred to as backlog.

Sentiment

Score: 3

Explanation: The document highlights significant declines in revenue and net income, along with material weaknesses in internal controls, which are major concerns for investors. While there are some positives, the overall tone is negative due to the financial performance and control issues.

Positives

• Gross margin as a percentage of revenue increased from 28.0% in 2022 to 35.5% in 2023.
• Operating expenses decreased by 12.6% year-over-year, mainly due to decreased compensation expenses.
• The company had $4,763 of net cash provided by operating activities for the year ended December 31, 2023, compared to $218,250 of net cash used in operating activities for the year ended December 31, 2022.

Negatives

• The company experienced a significant decrease in revenue and net income in 2023.
• The company identified a material weakness in its internal control over financial reporting.
• The company had a decrease in backlog from the prior year.

Risks

• The company may require additional funding in the future to expand or complete acquisitions.
• The company's sole officer and director has significant control over the voting stock.
• The company has a limited operating history and may not achieve profitable operations.
• The company is dependent on a limited number of customers.
• The company faces intense competition in the pool construction industry.
• The company's business is highly seasonal and susceptible to adverse weather conditions.
• The company may be subject to claims and lawsuits from customers, subcontractors, employees, and third parties.
• The company's backlog may not be realized or may not result in revenue or profit.
• The company may not be able to sell its custom home for the price sought, and may lose money on the sale.
• The company may face negative perceptions and potential adverse negative effects, related to past and pending actions involving its former officer, director and significant stockholder.
• The company's common stock is considered a penny stock and may be more difficult to resell.
• The company has established preferred stock which can be designated by the Companys Board of Directors without stockholder approval and the board has established Series A Preferred Stock, which gives the holder thereof majority voting power over the Company.

Future Outlook

The company plans to continue using the same marketing and management strategies and continue providing a quality product with excellent customer service while also seeking to expand its operations organically or through acquisitions as funding and opportunities arise. The company also plans to sell the custom home it has built.

Management Comments

• Management believes that with current cash on hand, expected revenues, and based on current average monthly expenses, the company does not anticipate the need for additional funding in order to continue operations at their current levels and to pay the costs associated with being a public company for the next 12 months.
• Management plans 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.

Industry Context

The swimming pool construction market is expected to grow, but the company faces competition from regional and local installers. The custom home market is also highly fragmented, with competition from smaller and larger construction firms.

Comparison to Industry Standards

• The document does not provide specific comparable companies or projects to benchmark against.
• The document does mention that the swimming pool construction market size was valued at approximately $6.8 billion in 2019, and is expected to reach approximately $7.4 billion by 2027, registering a compound annual growth rate of 3.8% from 2020 to 2027.
• The document also mentions that in 2023, 15.6% of total new single-family homes constructed in the West-South-Central portion of the United States, which includes Texas, were custom homes.

Related Party Transactions

• The company accrued bonus compensation to Michael Chavez, a greater than 10% shareholder, for services performed in the construction of the custom home.
• The company accrued commission expenses to its CEO and sole board member, Mr. May, for services performed during the year ended December 31, 2023.

Stakeholder Impact

• Shareholders may be concerned about the significant decrease in revenue and net income.
• Employees may be affected by potential changes in operations or staffing.
• Customers may be impacted by any changes in the company's services or pricing.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company plans to continue using the same marketing and management strategies.
• The company plans to continue providing a quality product with excellent customer service.
• The company plans to seek to expand its operations organically or through acquisitions as funding and opportunities arise.
• The company plans to sell the custom home it has built.
• The company plans to remediate its material weaknesses in internal controls as promptly as possible.

Key Dates

Keywords

swimming pool construction, custom homes, revenue, net income, internal control, financial reporting, backlog, construction loan, penny stock, related party transactions