1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
RELIANT HOME WARRANTY CORPORATION
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended September 30, 2006
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ____________
Commission files number 000-29827
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RELIANT HOME WARRANTY CORPORATION
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(Exact name of small business issuer as specified in its charter)
Florida 65-0656668
- ------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 250, 350 Bay Street
Toronto, Ontario M5H 2S6
------------------------------------
(Address of principal executive offices)
416 445-9500
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(Issuer's telephone number)
APPICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING
OF EACH OF THE ISSUER'S CLASSES OF COMMON EQUITY,
AS OF THE LATEST PRACTICABLE DATE: November 14, 2006-86,019,782
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TABLE OF CONTENTS
Page
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PART I 3
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan of Operation 14
Item 3 Controls and Procedures 21
PART II 22
Item 1. Legal Proceedings 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits 22
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Reliant Home Warranty Corporation
(Formerly Dialex Minerals Inc.)
(A Development Stage Company)
Consolidated Balance Sheets
prepared by management
As of As of
September 30 December 31
2006 2005
------------- -------------
(UNAUDITED) (AUDITED)
Assets
Current assets
Cash $ 749,708 $ --
Prepaid expenses 1,076 --
Accounts receivable 9,239 --
------------- -------------
Total current assets 760,023 --
Other assets 6,474 5,159
------------- -------------
Total assets $ 766,497 $ 5,159
------------- -------------
Liabilities and Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $ 184,945 $ 87,015
Credit line payable (Note 3) 1,056,768 --
Loan payable (Note 5) 1,037,500 --
Due to related parties (Note 4) 334,867 74,516
------------- -------------
Total current liabilities 2,614,080 161,531
Commitments & contingencies
Shareholders' Equity (Deficit)
Common stock (note 3)
$0.001 par value; 200,000,000 shares authorized
86,019,782 (2005-78,019,782) issued and
outstanding 86,020 78,020
Additional paid-in capital 2,150,846 718,846
Common stock purchase warrants 4,299,266 --
Accumulated deficit during the development stage (8,382,642) (947,207)
Accumulated other comprehensive loss (1,073) (6,031)
------------- -------------
Total shareholders' equity (deficit) (1,847,583) (156,372)
------------- -------------
Total liabilities and shareholders' equity $ 766,497 $ 5,159
============= =============
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(Formerly Dialex Minerals Inc.)
Consolidated Statements of Shareholders' Equity
For the periods from January 21, 2004 (date of inception) through September 30,
2006 (Prepared by management)
Common Accumulated Accumulated
Additional stock other deficit during Total
Common Stock paid-in purchase comprehensive development shareholders'
shares par value capital warrants loss stage (deficit)
----------- ----------- ----------- ---------- ----------- ----------- -----------
Balance January 21, 2004
(date of inception) (Note 3) 2,019,782 $ 2,020 $ 12,955 $ -- $ -- $ -- $ 14,975
=========== =========== =========== ========== =========== =========== ===========
Foreign currency translation -- -- -- -- (696) -- (696)
Net loss 2004 (8,455) (8,455)
----------- ----------- ----------- ---------- ----------- ----------- -----------
Balance December 31, 2004 2,019,782 2,020 12,955 -- (696) (8,455) 5,824
=========== =========== =========== ========== =========== =========== ===========
Shares issued for acquisition of
1604494 Ontario Inc 76,000,000 76,000 705,891 -- -- -- 781,891
Foreign currency translation -- -- -- -- (5,335) -- (5,335)
Net loss 2005 -- -- -- -- -- (938,752) (938,752)
----------- ----------- ----------- ---------- ----------- ----------- -----------
Balance December 31, 2005 78,019,782 78,020 718,846 -- 6,031) (947,207) (156,372)
=========== =========== =========== ========== =========== =========== ===========
Shares issued for consulting services 8,000,000 8,000 1,432,000 -- -- -- 1,440,000
Foreign currency translation 4,958 4,958
Issuance warrants to Laurus fund -- -- -- 4,299,266 -- -- 4,299,266
Net loss for nine months 2006 -- -- -- -- -- (7,435,435) (7,435,435)
----------- ----------- ----------- ---------- ----------- ----------- -----------
Balance September 30, 2006 86,019,782 $ 86,020 $ 2,150,846 $4,299,266 $ (1,073) $(8,382,642) $(1,847,583)
=========== =========== =========== ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(Formerly Dialex Minerals Inc.)
Consolidated Statements of Operations
Periods ended September 30, 2006 and 2005 and cumulative from January 21, 2004
(date of inception) through September 30, 2006 (Prepared by management)
Cumulative for the
period Jan 21,2004
Three months ended Sep 30 Nine months ended Sep 30 (date of inception)
through Sep 30
2006 2005 2006 2005 2006
------------ ------------ ------------ ------------ ------------
REVENUE $ -- $ -- $ -- $ -- $ --
Operating Expenses:
Wages & salaries 135,495 -- 151,632 -- $ 151,632
Professional fees 127,690 400 190,766 28,280 231,320
Consulting fees 151,067 580 1,612,343 11,502 1,684,407
Amortization of loan cost (Note 3) 5,207,256 -- 5,356,034 -- 5,356,034
General & administrative expenses 50,104 10,564 63,974 28,977 88,563
------------ ------------ ------------ ------------ ------------
Total operating expenses 5,671,612 11,544 7,374,749 68,759 7,511,956
------------ ------------ ------------ ------------ ------------
Loss from operations (5,671,612) (11,544) (7,374,749) (68,759) (7,511,956)
Interest expenses (54,197) -- (60,686) -- (60,686)
Discontinued operations -- -- -- (810,000) (810,000)
------------ ------------ ------------ ------------ ------------
Loss before income taxes (5,725,809) (11,544) 7,435,435) (878,759) (8,382,642)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss (5,725,809) (11,544) (7,435,435) (878,759) (8,382,642)
Foreign currency translation adjustment 4,639 -- 4,958 -- (1,073)
------------ ------------ ------------ ------------ ------------
Total comprehensive loss $ (5,721,170) $ (11,544) $ (7,430,477) $ (878,759) $ (8,383,275)
------------ ------------ ------------ ------------ ------------
Net loss
Per common share-basic $ (0.07) $ (0.00) $ (0.09) $ (0.01)
Per common share diluted $ (0.07) $ (0.00) $ (0.09) $ (0.01)
Weighted Average number of shares
outstanding during the period basic 86,019,782 78,019,944 84,290,844 60,737,802
outstanding during the period diluted 86,019,782 78,019,944 84,290,844 60,737,802
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(Formerly Dialex Minerals Inc.)
(A Development Stage Company)
Consolidated Statements Cash Flows
Periods Ended Sep 30, 2006 and 2005 and cumulative from January 21, 2004 (date
of inception) through Sep 30,2006 (Prepared by management)
Cumulative from
Jan 21,2004
(date of inception)
Nine Months ended Sep 30 through Sep 30
2006 2005 2006
------------- ------------- -------------
Cash Flows from Operating Activities
Net loss $ (7,435,435) $ (878,759) $ (8,382,642)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization 5,356,034 -- 5,356,034
Issuance shares for consulting fee 1,440,000 -- 1,440,000
Discontinued operations -- 810,000 810,000
Change in working capital accounts: -- -- --
Accounts payable 97,930 21,084 171,811
Prepaid expenses (1,076) -- (1,076)
Accounts receivable (9,239) -- (9,239)
Other assets (1,315) 4,932 (6,474)
------------- ------------- -------------
Net cash used in operating activities (553,101) (42,743) (621,586)
------------- ------------- -------------
Cash Flow From Financing Activities
Proceed from loan 1,037,500 -- 1,037,500
Proceeds from credit line 1,056,768 -- 1,056,768
Payment of loan costs cash portion (1,056,768) -- (1,056,768)
Proceeds from related company debt 260,351 50,484 334,867
------------- ------------- -------------
1,297,851 50,484 1,372,367
------------- ------------- -------------
Net Increase in Cash 744,750 7,741 750,781
Foreign exchange on Cash balances 4,958 -- (1,073)
------------- ------------- -------------
749,708 7,741 749,708
Cash - beginning period -- -- --
------------- ------------- -------------
Cash-end of period $ 749,708 $ 7,741 $ 749,708
------------- ------------- -------------
Noncash activities
Stock warrants issued for loan costs $ 4,299,266 $ -- $ 4,299,266
Supplemental disclosures:
Interest paid 60,686 -- 60,686
Income tax paid -- -- --
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(Formerly Dialex Minerals Inc.)
(A Development Stage Company)
Notes to financial statements
September 30, 2006
1. Organization and Development Stage Activities
Organization
Reliant Home Warranty Corporation formerly Dialex Minerals Inc, (the
"Company") was incorporated in the State of Florida on December 18, 1995,
under the trade name of Ronden Vending Corp. On March 24, 2005, the Company
entered into a stock exchange agreement with BSA Group Limited, in trust as
trustee for the stockholders of 1604494 Ontario Inc, an Ontario Corporation
incorporated on January 21, 2004. Under this agreement, the Company
exchanged 76,000,000 common shares for 100% of the issued and outstanding
stocks of 1604494 Ontario Inc. As a result of the stock exchange, the
Company obtained control over 1604494 Ontario Inc. Legally the Company is
the parent of 1604494 Ontario Inc., however, as a result of the stock
exchange, control of the combined companies passed to the stockholders of
1604494 Ontario Inc., which for accounting purposes is deemed to be the
acquirer under reverse merger. As such, the financial statements present
the financial position as of September 30, 2006, and 2005, and the
operations for the three and nine periods ended September 30, 2006, and
2005, and for the period from inception (January 21, 2004) through
September 30, 2006, of 1604494 Ontario Inc. under the name of the Company.
The reverse merger has been recorded as a recapitalization of the Company,
with the net assets of the 1604494 Ontario Inc. and the Company brought
forward at their historical basis. The costs associated with the reverse
merger have been expensed as incurred.
Development Stage Activities
Upon completion of the reverse merger, the Company changed the nature of
its business and now offers a proprietary line of Home Value Warranty
Programs, designed for sale to purchasers of residential real estate
(single family homes and condominiums).
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2. Summary of Significant Accounting Policies
a) Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Interim results are not necessarily indicative of the results
that may be expected for a full year. These financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report to Stockholders on
Form 10-KSB for the fiscal year ended December 31, 2005, as filed with the
Securities and Exchange Commission.
b) Unit of Measurement
The United States currency is being used as the unit of measurement in
these consolidated financial statements.
c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and cash deposited with
financial institutions, including money market accounts, and commercial
paper purchased with an original maturity of three months or less.
d) Revenue Recognition
Revenue for warranty contracts will be deferred and recognized in income on
a straight line basis over the contract period except in those
circumstances in which sufficient historical evidence indicates that the
cost of performing services under the contract are incurred on other than a
straight line basis. In those circumstances, revenue will be recognized
over the contract period in proportion to the costs expected to be incurred
in performing services under the contract. Losses are recognized on
warranty contracts if the sum of expected costs of providing services under
the contracts exceeds the related unearned revenue.
e) Use of Estimates
Preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and related notes to financial
statements. These estimates are based on management's best knowledge of
current events and actions the Company may undertake in the future. Actual
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results may ultimately differ from estimates, although management does not
believe such changes will materially affect the financial statements in any
individual year.
f) Fair Value of Financial Instruments
The carrying amounts reported in the accompanying financial statements for
current assets and current liabilities approximate fair values because of
the immediate or short-term maturities of the financial instruments.
g) Earnings per Share
Basic earnings per share ("EPS") is computed by dividing earnings available
to common shareholders by the weighted average number of common shares
outstanding for the period as required by SFAS No. 128, "Earnings per
Shares". Diluted EPS reflects the potential dilution of securities that
could share in the earnings. Potentially dilutive securities for the three
and nine months ended September 30, 2006 consist of the 36,128,286 shares
of common stock under Warrant (see note 3) There were no diluted securities
for the period prior to 2006.
h) Equity Compensation
The Company enters into transactions in which goods or services are the
consideration received for the issuance of equity instruments. In
accordance with SFAS No. 123(R) "Accounting for Stock-Based Compensation",
the value of these transactions are measured and accounted for, based on
the fair value of the equity instrument issued or the value of the
services, whichever is more reliably measurable. The services are expensed
in the periods during which the services are rendered.
I) Foreign Currency Translation
The Company accounts for foreign currency translation pursuant to SFAS No.
52, "Foreign Currency Translation". The Company's functional currency is
the Canadian dollar. All assets and liabilities are translated into United
States dollars using the exchange rates prevailing at the end of the year.
Revenues and expenses are translated using the average exchange rates
prevailing throughout the year. Unrealized foreign exchange amounts
resulting from translations at different rates according to their nature
are included in accumulated other comprehensive income. Realized foreign
currency transaction gains and losses are recognized in operations.
J) Comprehensive Income or Loss
Comprehensive income is presented in the statements of stockholders'
equity, and consists of net loss and unrealized gains (loss) on available
for sale marketable securities; foreign currency translation adjustments
and changes in market value of future contracts that qualify as a hedge;
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and negative equity adjustments recognized in accordance with SFAS No. 87.
SFAS No. 130 requires only additional disclosures in the financial
statements and does not affect the Company's financial position or results
of operations.
k) Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board issued FASB
Interpretation (FIN) No 48 "Accounting for Uncertainty in Income Taxes" -
An Interpretation of SFAS No 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in enterprise`s financial statements
in accordance with SFAS No 109 "Accounting for Income Taxes. FIN 48 also
prescribes a recognition threshold and measurement attribute for the
financial statements recognition and measurement of tax position taken or
expected to be taken in tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The provision of FIN 48 is
effective for fiscal year beginning after December 15, 2006. We will adopt
FIN 48 in the first quarter of 2007. We do not believe the effect of
adopting FIN 48 will have material impact on our financial statements.
Recently, the FASB has been very active, issuing a number of accounting
pronouncement with various effective dates. These pronouncements, which
were not discussed above, do not have a material effect on our financial
statements.
l) Loan Costs
Loan costs represent costs incurred to secure the Company's revolving
credit line. The costs are being amortized over the 36 months term of
credit line on straight line basis
m) Reclassifications
Where necessary, prior period amounts have been reclassified to conform to
current period presentation. None of the reclassifications had an effect on
net loss or shareholders' equity as previously reported
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3. Stockholders' Equity and Revolving Note Agreement
On February 2, 2005, the Company undertook a reverse split of its
outstanding common shares on the basis of one new share for twenty - two
old shares, thereby reducing its outstanding common shares from 44,438,768
to 2,019,782 prior to the acquisition of a subsidiary company. The reverse
split has retroactively been taken into consideration in the consolidated
financial statements and in the calculation of earnings per share.
March 24, 2005, pursuant to stock exchange agreement, the BSA Group Limited
in trust for the shareholders of the Company, acquired control of 1604494
Ontario Inc. by acquiring from treasury 76,000,000 shares of the Company in
exchange for all the issued and outstanding shares of 1604494 Ontario Inc.
On March 1, 2006, the board of directors approved the issuance of 8,000,000
of its common shares, in consideration of consulting service to Harvey E.
Moss and Leslie N. Moss.
On June 8, 2006, the Company entered into a Security and Purchase Agreement
with Laurus Master Fund Ltd. ("Laurus") pursuant to which the Company
issued to Laurus a Secured Revolving Note in the aggregate principal amount
of $25,000,000 and a warrant to purchase up to 36,128,286 shares of the
Company's common stock, par value $.001 per share, at a price of $.001 per
share (the "Warrant").
As the Company did not have a sufficient number of authorized but un issued
shares of its Common stock to issue upon the full exercise of the Warrant,
it sought and obtained shareholder and State of Florida approval to a
Certificate of Amendment to increase its authorized number of shares of
Common Stock from 100 million shares to 200 million shares. It now has a
sufficient number of authorized shares of Common Stock to issue upon
exercise of the Warrant in full and for other general corporate purposes
which may arise.
The Company has agreed to use the proceeds of the Note solely for the
purposes of funding certain mortgage loans to its customers, except for
$900,000 that the Company has paid to Laurus Capital Management, LLC, the
investment advisor to Laurus, and $156,768 that the Company has paid to
Laurus Capital Management, LLC and certain third parties as reimbursement
for their due diligence and legal fees and expenses incurred in connection
with the transaction. These costs, which totaled $1,056,768, and which were
paid from draws on the credit line, have been capitalized as loan costs The
outstanding principal amount of the Note, which totaled $1,056,768 at
September 30, 2006, carries an interest rate of prime plus 2%, subject to a
minimum rate of 8%. The principal amount of the Note is payable on the
maturity date of June 8, 2009, and interest is payable monthly beginning on
July 8, 2006. The Company may, at its option, prepay the Note by paying the
holder the principal amount, all accrued and unpaid interest thereon,
together with a prepayment premium ranging from 3% to 5% of the outstanding
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principal amount, depending on the date of the prepayment. The Note is
secured by substantially all assets of the Company. In addition the
76,000,000 shares of Common stock issued by the Company with its 2005
reverse merger have been pledged as security for the Note.
The Company used the Black-Scholes option valuation model to calculate the
"fair value" of the Warrant and the corresponding capitalized loan costs.
The assumptions used in the calculation are: expected term of 90 days,
volatility of 219.8%, and interest rate of 4.47 and yield of zero. The
expected term is based on the requirements of the Security and Purchase
Agreement. The expected volatility is based on the historical volatility of
the Company's common stock over a one year period preceding the
transaction. The dividend yield of zero is based on the fact that the
Company has never paid cash dividends and has no intention to pay cash
dividends. The risk free interest rate is derived from average US treasure
rates.
The following table summaries the capitalized loan costs:
Fees paid to Laurus Capital Management, LLC $ 915,000
Fees paid to other third parties (primarily legal fees) 141,768
Value of Warrant issued to Laurus 4,299,266
----------
5,356,034
Accumulated amortization (5,356,034)
----------
Capitalized loan costs at September 30, 2006 $ --
----------
In September 2006, the Company was notified by Laurus that given a changed
investment climate, it did not intend to proceed with and advance any
further monies under the Note and related loan agreements it had entered
into with the Company. To that date it had advanced the amount of
$1,056,768 under the loan agreements in payment of its own fees and related
legal and agency expenses. The Company and Laurus have entered into
negotiations respecting the resolution of the relationship created by the
Security and Purchase Agreement and other loan agreements between them. The
results of these negotiations will be reflected in the year end 2006
financial statements.
As a result of the decision by Laurus not to proceed with the transaction,
the Company wrote-off the balance of the unamortized capitalized loan costs
in September 2006. Amortization expense including the write-off charge
totaled $5,207,256 for the three months ended September 30, 2006
In August 2006, the Company issued 4,000,000 restricted common shares in
consideration of consulting fees incurred in connection with a financing
transaction that did not materialize. These shares in the opinion of
counsel were issued in error are a nullity and therefore are not reflected
as part of the Company's outstanding capital
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4. Due to Related Parties
Due to related parties represents advances to the Company by a
stockholder/officer of the Company to fund the working capital of the
Company. The advances are non-interest bearing and have no fixed terms for
repayment.
5. Loan Payable
In August 2006, the Company received loan proceeds of $1,037,500 under the
terms of a loan agreement with its shareholder Galaxy Galleria Inc. This
agreement was made for the purpose of engaging Galaxy Galleria to provide
structured financing to assist the Company in bolstering its working
capital and meeting its ongoing financial obligations. The loan bears
interest at a rate of 15.1% and is payable quarterly in arrears. The
principal is due an July 18, 2007.
6. Going Concern
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
with the assumption that the Company will be able to realize its assets and
discharge its liabilities in the normal course of business.
The Company has sustained net losses of $8,383,642 since inception
including $7,435,435 for the nine months ended September 30, 2006, which
raise substantial doubt about the Company's ability to continue as a going
concern. The Company is dependant on successfully bringing its services to
market, achieving future profitable operations, and obtaining additional
sources of financing to sustain its operations, the outcome of which cannot
be predicted at this time. Although the Company plans to pursue additional
financing, there can be no assurance that the Company will be able to
secure financing when needed or obtain such on terms satisfactory to the
Company.
The accompanying financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that may result from the possible inability of the Company to continue as a
going concern.
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ITEM 2 MANAGEMENT DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION
As used in this Form 10-QSB, references to the "Company," the "Registrant,"
"we," "our" or "us" refer to Reliant Home Warranty Corp. unless the context
otherwise indicates.
GENERAL
The following discussion is intended to provide an analysis of Reliant's
financial condition and should be read in conjunction with Reliant's audited
financial statements and the related footnotes. The matters discussed in this
section that is not historical or current facts deal with potential future
circumstances and developments. Such forward-looking statements include, but are
not limited to, the development plans for the Company's growth, trends in the
results of the Company's development, anticipated development plans, operating
expenses and the Company's anticipated capital requirements and capital
resources. The Company's actual results could differ materially from the results
discussed in the forward-looking statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. For example, statements included in this report regarding our financial
position, business strategy and other plans and objectives for future
operations, and assumptions and predictions about future product demand, supply,
manufacturing, costs, marketing and pricing factors are all forward-looking
statements. When Reliant uses words like "intend," "anticipate," "believe,"
"estimate," "plan" or "expect," Reliant is making forward-looking statements.
Reliant believes that the assumptions and expectations reflected in such
forward-looking statements are reasonable, based on information available to
Reliant on the date hereof, but Reliant cannot assure you that these assumptions
and expectations will prove to have been correct or that we will take any action
that we may presently be planning. Reliant has disclosed certain important
factors that could cause Reliant's actual results to differ materially from
Reliant's current expectations elsewhere in this report. You should understand
that forward-looking statements made in this report are necessarily qualified by
these factors. Reliant is not undertaking to publicly update or revise any
forward-looking statement if Reliant obtains new information or upon the
occurrence of future events or otherwise.
COMPANY HISTORY
Reliant Home Warranty Corporation ("the Company") was incorporated in the State
of Florida on December 18, 1995 as Ronden Vending Corp.
On December 24, 1996, the Company incorporated a wholly owned subsidiary called
Ronden Acquisition, Inc., a Florida corporation. Ronden Acquisition, Inc then
merged with Video Home Shopping, Inc., (a Tennessee corporation), and Ronden
Acquisition, Inc. was the surviving Florida Corporation. Subsequent to the
merger the Company suspended the network marketing and distribution operations
of Video Home Shopping, Inc of Tennessee.
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On January 9, 1997, articles of merger were filed for the Company as the
surviving corporation of a merger between the Company and its wholly owned
subsidiary Ronden Acquisition, Inc. This step completed the forward triangular
merger between Video Home Shopping, Inc., Ronden Acquisition, Inc. and the
Company.
On January 9, 1997, articles of amendment were filed to change the name of the
Company from Ronden Vending Corp to VHS Network, Inc (VHSN). On April 9, 1997,
the Company incorporated VHS Acquisition, Inc. as a wholly owned subsidiary.
In April 1997, the Company was restructured by way of a reverse take-over
involving its wholly owned subsidiary, VHS Acquisition, Inc., a Florida company,
and VHS Network, Inc., a Manitoba and Canadian controlled private corporation.
On April 12, 2000, the Company acquired all the outstanding common shares of
China eMall Corporation, an Ontario private company. This represented a 100%
voting interest in China eMall Corporation. The Company functioned as an
e-commerce company. On September 5, 2003, the Company divested its interest in
China eMall by selling all the outstanding common shares of China eMall for a
nominal amount ($2.00).
On May 6, 2001, the Company entered into an agreement and plan of reorganization
with Branson Holdings, Inc ("Branson") to acquire all the issued and outstanding
shares of Branson. On July 26, 2001, VHSN terminated its agreement with Branson.
On December 1, 2001, the Company acquired all the outstanding common shares of
TrueNet Enterprise Inc., an Ontario private company. On September 22, 2003, the
Company changed its name to Dialex Minerals Inc. and completed a reverse split
of its issued and outstanding common shares on the basis of ten (10) common
shares for one (1) new common share.
On February 9, 2004, the Company completed a transaction acquiring all the
outstanding shares of Condor Diamond Corp. an Ontario private company.
On February 2, 2005, pursuant to a Stock Exchange Agreement and a registration
statement filed on Form 14-3 with the Securities and Exchange Commission, the
Company changed its name from Dialex Minerals Inc. to Reliant Home Warranty
Corporation. The Company undertook a reverse split of its outstanding common
shares on the basis of one (1) new share for twenty-two (22) old shares thereby
reducing its outstanding common shares from 44,438,786 to 2,019,945.
On March 16, 2005, Sandro Sordi in Trust acquired control of the Company, by
acquiring a majority of its issued and outstanding shares through the execution
of a share purchase agreement with Condor Gold Corp and RTO Zarex Ltd.
Effective March 23, 2005, the former directors of the Company, Alexander
Stewart, Wallace Stonehouse, Kirk Boyd, Stephen Stewart and Neil Novak, resigned
upon the appointment of new directors, Kevin Hamilton, Valeri Guilis, Boyd
Soussana and the Honorable John Roberts. On March 24, 2005, The BSA Group
Limited ("BSA"), in trust for the shareholders of 1604494 Ontario Inc., an
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ntario private company, acquired control of the Company by acquiring from
treasury 76,000,000 shares of the Company in exchange for all of the issued and
outstanding shares of 1604494 Ontario Inc. The total amount of issued and
outstanding shares in the Company as a result increased to 78,019,782.
Coincident with the establishment of its home warranty insurance business, the
Company divested all of issued and outstanding shares, of Condor Diamond Corp.,
the Company's wholly-owned subsidiary, to Condor Gold Corp., in consideration of
the return of any and all liabilities owing by the Company to Condor Gold Corp.
During 2005 the Company changed the nature of its business and now markets to
Canadian homeowners a proprietary line of non-prime home mortgage programs,
designed to compliment mortgages of residential real estate (single family homes
and condominiums).
On April 21, 2005, the Company entered into a letter of intent with Creditorlife
Inc respecting the comprehensive marketing of the Company's proprietary line of
products.
On May 19, 2005, the Company announced to the public, the media and the trade
the full extent of its new range of its products.
On May 21, 2005, the Company entered into a comprehensive letter of intent with
Brit Insurance respecting the full reinsurance by Brit of the Company's range of
products.
On June 20, 2005, the Company entered into a comprehensive letter of intent with
Dundee Securities respecting Dundee's acting as the Company's fiscal advisor.
On August 26, 2005, the board of directors of the Company accepted the
resignation of its President and Chairman Kevin Hamilton and appointed one of
its existing directors, Boyd Soussana, as its new Chairman and President.
On January 1, 2006, the board of directors of the Company accepted the
resignation of its Treasurer and Director, Val Guilis, and appointed Paul Burden
as its Treasurer and Director.
On March 1, 2006, the Company issued 8,000,000 of its common shares to Harvey E.
Moss and Leslie N. Moss in consideration of consulting services rendered by them
to the Company. The 8,000,000 "unrestricted" common shares were issued pursuant
to an S-8 Filing that the Company filed with the Securities and Exchange
Commission.
On June 8, 2006, the Company entered into a Security and Purchase Agreement (the
"Security and Purchase Agreement") with Laurus Master Fund Ltd. ("Laurus")
pursuant to which the Company issued to Laurus a Secured Revolving Note (the
"Note") in the aggregate principal amount of $25.0 million and a warrant to
purchase up to 36,128,286 shares of the Company's common stock, par value $.001
per share, at a price of $.001 per share (the "Warrant").
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The Company has agreed to use the proceeds of the Note solely for the purposes
of funding certain mortgage loans to its customers, except for $900,000 that the
Company has paid to Laurus Capital Management, LLC, the investment advisor to
Laurus, and approximately $156,000 that the Company has paid to Laurus Capital
Management, LLC and certain third parties as reimbursement for their due
diligence and legal fees and expenses incurred in connection with the
transaction.
The principal amount of the Note carries an interest rate of prime plus 2%,
subject to a minimum rate of 8%. The principal amount of the Note is payable on
the maturity date of June 8, 2009, and interest is payable monthly beginning on
July 8, 2006. The Company may, at its option, prepay the Note by paying the
holder the principal amount, all accrued and unpaid interest thereon, together
with a prepayment premium ranging from 3% to 5% of the outstanding principal
amount, depending on the date of the prepayment. The Note is secured by all of
the Company's assets and the stock of one of the Company's subsidiaries, Reliant
Home Mortgage Canada Inc.
As the Company did not have a sufficient number of authorized but unissued
shares of its common stock to issue upon the full exercise of the Warrant, it
sought and obtained shareholder and State of Florida approval to a Certificate
of Amendment to increase its authorized number of shares of common stock from
100 million shares to 200 million shares. It now has a sufficient number of
authorized shares of common stock to issue upon exercise of the Warrant in full
and for other general corporate purposes which may arise.
On June 8, 2006, the Company entered into a Registration Rights Agreement with
Laurus. Pursuant to this Agreement the Company is preparing a registration
statement with the Securities and Exchange Commission for the purpose of
registering for resale all of the shares of the Company's common stock issuable
upon exercise of the Warrant.
On July 18, 2006, the Company entered into a loan agreement with its shareholder
Galaxy Galleria Inc. This agreement was made for the purpose of engaging Galaxy
Galleria Inc. to provide structured financing to assist the Company to bolster
its working capital and meeting its ongoing financial obligations. The principle
amount of the loan, which totaled 1,037,500 at September 30, 2006, is due on
July 18, 2007. The loan bears interest at a rate of 15.1% and is payable
quarterly in arrears.
In August 2006, the Company issued 4,000,000 restricted common shares in
consideration of consulting fees incurred in connection with a financing
transaction that did not materialize. These shares in the opinion of counsel
were issued in error are a nullity and therefore are not reflected as part of
the Company's outstanding capital
-17-
In September 2006, the Company was notified by Laurus that given a changed
investment climate, it did not intend to proceed with and advance any further
monies under the Note and related loan agreements it had entered into with the
Company. To that date it had advanced the amount of $1,056,768 under the loan
agreements in payment of its own fees and related legal and agency expenses. The
Company and Laurus have entered into negotiations respecting the resolution of
the relationship created by the Security and Purchase Agreement and other loan
agreements between them. The results of these negotiations will be reflected in
the year end 2006 financial statements.
RESULTS OF OPERATIONS
Results for the nine months ended September 30, 2006
Revenue for the nine months ended September 30, 2006 was zero. The Company
continued to develop its proprietary residential mortgage and residential
mortgage insurance programs, which it launched during the third quarter of this
fiscal year and as such has not generated any revenues. Operating expenses
increased to $7,274,749 for the nine month period ended September 30, 2006,
compared to $68,759 for the same period in 2005 This increase was due primarily
to amortization of loan costs related to financing that did not materialize, and
to wages and salaries, professional fees, consulting fees and general
administrative expenses related to the development of the Company's proprietary
mortgage program.
PLAN OF OPERATIONS
The Company has changed the nature of its business and now is preparing to
operate a fully integrated mortgage and mortgage insurance enterprise.
The Company used the nine month period ending September 30, 2006 to further
develop, refine and launch its' proprietary residential mortgage and mortgage
insurance enterprise throughout Canada. This intensive effort together with an
array of one time legal accounting, investment advisory and development costs
and the amount to write-off of loan costs related to financing which did not
materialize, resulted in a net loss $7,435,435 during the nine months of 2006.
CHANGES IN SECURITIES
On September 5, 2003, the Company announced that it would conduct a reverse
split of its issued and outstanding shares on the basis of 10 common shares for
one new common share. The Company at that date had 37,345,268 common shares
issued and outstanding, after the reverse split there were 3,734,526 common
shares issued and outstanding.
On February 9, 2004, the Company issued 34,000,000 common shares for the
acquisition of 100% of the issued and outstanding common shares of Condor
Diamond Corp.
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On March 3, 2004, the Company authorized the issuance of 6,004,426 shares under
a Form S-8 filing and pursuant to debt settlement agreements totaling $428,875.
On February 2, 2005, Company undertook a reverse split of its outstanding common
shares on the basis of one (1) new share for twenty-two (22) old shares reducing
its outstanding common shares from 44,438,786 to 2,019,782.
On March 24, 2005, Corporation issued 76,000,000 shares in consideration of the
acquisition of 100% of the issued and outstanding common shares of 1604494
Ontario Inc., an Ontario private company. This transaction occurred pursuant to
a Stock Exchange Agreement, whereby The BSA Group Limited , in trust for the
shareholders of 1604494 Ontario Limited, acquired control of the Company by
acquiring from treasury 76,000,000 shares of the Corporation in exchange for all
of the issued and outstanding shares of 1604494 Ontario Inc. As a result, three
shareholders of 1604494 Ontario Inc. had acquired and then owned ninety-seven
point four percent (97.4%) of the issued and outstanding common shares of the
Company.
Kevin Hamilton acquired beneficial ownership of 20,085,667 common shares in the
capital of the Company, through a corporation, Galaxy Galleria Inc. that he
controls. This represents 25.7% of the issued and outstanding common shares of
the Company. These common shares of the Company were issued to Galaxy Galleria
Inc. pursuant to the Stock Exchange Agreement, namely one common share of the
Company was issued for each one common share of 1604494 Ontario Inc. acquired.
RS Atlantic Holdings Inc. a private company acquired ownership of 18,921,220
common shares in the capital of the Company, which represents 24.2% of the
issued and outstanding consolidated common shares of the Company. These common
shares of the Company were issued to RS Atlantic Holdings Inc pursuant to the
Stock Exchange Agreement, namely one common share of the Company was issued for
each one common share of 1604494 Ontario Inc acquired.
HS Holdings Inc. a private company acquired ownership of 18,753,113 common
shares in the capital of the Company, which represents 24.0% of the issued and
outstanding consolidated common shares of the Company. These common shares of
the Company were issued to HS Holdings Inc pursuant to the Stock Exchange
Agreement, namely one common share of the Company for each one common share of
1604494 Ontario Inc. acquired. The total amount of issued and outstanding shares
in the Company thereby increased to 78,019,782.
On March 1, 2006, the Company issued 8,000,000 of its common shares to Harvey E.
Moss and Leslie N. Moss in consideration of consulting services rendered by them
to the Company. The 8,000,000 "unrestricted" common shares were issued pursuant
to an S-8 filing that the Company filed with the Securities and Exchange
Commission.
On June 8, 2006, the Company entered into a Security and Purchase Agreement (the
"Security and Purchase Agreement") with Laurus Master Fund Ltd. ("Laurus")
pursuant to which the Company issued to Laurus a Secured Revolving Note (the
-19-
"Note") in the aggregate principal amount of $25.0 million and a warrant to
purchase up to 36,128,286 shares of the Company's common stock, par value $.001
per share, at a price of $.001 per share (the "Warrant").
The Company has agreed to use the proceeds of the Note solely for the purposes
of funding certain mortgage loans to its customers, except for $900,000 that the
Company has paid to Laurus Capital Management, LLC, the investment advisor to
Laurus, and approximately $156,000 that the Company has paid to Laurus Capital
Management, LLC and certain third parties as reimbursement for their due
diligence and legal fees and expenses incurred in connection with the
transaction.
The principal amount of the Note carries an interest rate of prime plus 2%,
subject to a minimum rate of 8%. The principal amount of the Note is payable on
the maturity date of June 8, 2009, and interest is payable monthly beginning on
July 8, 2006. The Company may, at its option, prepay the Note by paying the
holder the principal amount, all accrued and unpaid interest thereon, together
with a prepayment premium ranging from 3% to 5% of the outstanding principal
amount, depending on the date of the prepayment. The Note is secured by all of
the Company's assets and the stock of one of the Company's subsidiaries, Reliant
Home Mortgage Canada Inc.
As the Company did not have a sufficient number of authorized but un issued
shares of its common stock to issue upon the full exercise of the Warrant, it
sought and obtained shareholder and State of Florida approval to a Certificate
of Amendment to increase its authorized number of shares of common stock from
100 million shares to 200 million shares. It now has a sufficient number of
authorized shares of common stock to issue shares upon exercise of the Warrant
in full and for other general corporate purposes which may arise.
On June 8, 2006, the Company entered into a Registration Rights Agreement with
Laurus (the "Registration Rights Agreement"). Pursuant to this Agreement the
Company is preparing a registration statement with the Securities and Exchange
Commission for the purpose of registering for resale all of the shares of the
Company's common stock issuable upon exercise of the Warrants.
On July 18, 2006, the Company entered into a loan agreement with its shareholder
Galaxy Galleria Inc. This agreement was made for the purpose of engaging Galaxy
Galleria Inc. to provide structured financing to assist the Company to bolster
its working capital and meeting its ongoing financial obligations. The principle
amount of the loan, which totaled 1,037,500 at September 30, 2006, is due on
July 18, 2007. The loan bears interest at a rate of 15.1% and is payable
quarterly in arrears.
In August 2006, the Company issued 4,000,000 restricted common shares in
consideration of consulting fees incurred in connection with a financing
transaction that did not materialize. These shares in the opinion of counsel
were issued in error are a nullity and therefore are not reflected as part of
the Company's outstanding capital
-20-
In September 2006, the Company was notified by Laurus that given a changed
investment climate, it did not intend to proceed with and advance any further
monies under the Note and related loan agreements it had entered into with the
Company. To that date it had advanced the amount of $1,056,768 under the loan
agreements in payment of its own fees and related legal and agency expenses. The
Company and Laurus have entered into negotiations respecting the resolution of
the relationship created by the Security and Purchase Agreement and other loan
agreements between them. The results of these negotiations will be reflected in
the year end 2006 financial statements.
The nature of the Company's financial status makes the Company lack the
characteristics of a going concern. This is because the company, due to its
financial condition, may have to seek loans or the sale of its securities to
raise cash to meet its cash needs. Reliant is in the process of developing, and
exploiting its proprietary financial systems and "know how". The Company has not
yet generated either revenue or profit from its operations. Its continued
existence and its ability to continue as a going concern are dependent upon its
ability to obtain additional capital to fund its operations
GOALS AND OBJECTIVES
The Company is engaged in marketing throughout Canada a series of proprietary
non-prime residential mortgage products and related residential mortgage
insurance services.
CASH REQUIREMENTS
The Company intends to meet its cash requirements through a combination of
operational cash flow as well as sales of its securities.
ITEM 3 CONTROLS & PROCEEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
(a) As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer; of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms.
(b) There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of evaluation referenced in paragraph (a) above.
CHANGES IN INTERNAL CONTROLS
There have been no changes in the Company's internal control over financial
reporting during the last quarterly period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDING
From time to time, Reliant may be involved as a plaintiff or defendant in
various legal actions arising in the normal course of business. Reliant does not
anticipate any material liability as a result of such litigation. Reliant is not
aware of any material legal proceedings that have occurred within the past five
years concerning any director, director nominee, or control person which
involved a criminal conviction, a pending criminal proceeding, a pending or
concluded administrative or civil proceeding limiting one's participation in the
securities or banking industries, or a finding of securities or commodities law
violations.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no matter
submitted to a vote of security holders during the fiscal quarter ended
September 30, 2006.
ITEM 5 OTHER INFORMATION.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE On September 29, 2006, the Company filed a current report on Form
8-KA with the Commission disclosing changes in certifying accountant.
POST PERIOD EVENTS
None
ITEM 6 EXHIBITS
Exhibit No. Description
- ----------- -----------
31.1 Rule 13a-14(a)/15d14(a) Certifications of Principal
Executive Officer
31.2 Rule 13a-14(a)/15d14(a) Certifications of Principal
Financial and Accounting Officer
32.1 Section 1350 Certifications of Principal Executive Officer
32.2 Section 1350 Certifications of Principal Financial and
Accounting Officer
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SIGNATURES
- --------------------------------------------------------------------------------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RELIANT HOME WARRANTY CORPORATION
Date November 14, 2006 /s/ Boyd Soussana
---------------------------------
(Signature) Boyd Soussana
Chief Executive Officer
Date November 14, 2006 /s/ Stephen Hamilton
---------------------------------
(Signature) Stephen Hamilton
Chief Financial Officer
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