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 June 30, 2007
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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 FINANCIAL SERVICE 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.)
80 Carlouren Drive Suite 23
Woodbridge, Ontario L4L 7Z5
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(Address of principal executive offices)
905-264-0168
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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: Aug 19, 2007-110,099,002
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TABLE OF CONTENTS
Page
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PART I
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Item 3 Controls and Procedures 19
PART II
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 20
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Reliant Home Warranty Corporation
(A Development Stage Company)
Consolidated Balance Sheet
June 30, 2007
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Assets
Current assets
Cash $ 51,739
Prepaid expenses and other current assets 112,305
------------
Total current assets 164,044
------------
Mortgages receivable 1,040,864
Loan costs 75,230
Other assets 5,642
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Total other assets 1,121,736
------------
Total assets $ 1,285,780
============
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 141,960
Mortgages payable 958,397
Prepaid sales and deposits 101,831
Loan payable to related party 1,019,447
Due to related parties 389,958
------------
Total current liabilities 2,611,593
Commitments & contingencies
Shareholders' Equity (Deficit)
Common stock (note 3)
$0.001 par value; 200,000,000 shares authorized, 110,099
110,099,002 shares issued and outstanding
Additional paid-in capital 6,644,389
Common stock purchase warrant 4,299,266
Accumulated deficit during the development stage (12,484,628)
Accumulated other comprehensive loss 105,061
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Total shareholders' (deficit) (1,325,813)
------------
Total liabilities and shareholders' equity $ 1,285,780
============
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity (Deficit)
For the periods from January 21, 2004 (date of inception) through June 30, 2007
Accumulated
Common Accumulated Deficit Total
Additional Stock Other During Shareholders'
Common Stock Paid-In Purchase Comprehensive Development Equity
Shares Par Value Capital Warrants Income (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 service 8,000,000 8,000 1,432,000 -- -- -- 1,440,000
Issuance warrants to Lauras fund 4,299,266 -- -- 4,299,266
Shares issued to Laurus 2,167,987 2,168 1,056,102 -- -- -- 1,058,270
Shares issued to Laurus 22,957 23 11,183 -- -- -- 11,206
Shares issued to various customers 638,276 638 65,008 -- -- -- 65,646
Foreign currency translation -- -- -- -- 8,447 -- 8,447
Net loss for 2006 -- -- -- -- (7,729,609) (7,729,609)
------------ ------------ ------------ ---------- ------------ ------------ ------------
Balance Dec 31, 2006 88,849,002 88,849 3,283,139 4,299,266 2,416 (8,676,816) (1,003,146)
============ ============ ============ ========== ============ ============ ============
Shares issued for consulting service 19,000,000 19,000 3,081,000 -- -- -- 3,100,000
Shares issued for consulting service 250,000 250 42,250 -- -- -- 42,500
Shares issued for consulting service 2,000,000 2,000 238,000 -- -- -- 240,000
Foreign currency translation -- -- -- -- 102,645 -- 102,645
Net loss for six months 2007 -- -- -- -- -- (3,807,812) (3,807,812)
------------ ------------ ------------ ---------- ------------ ------------ ------------
Balance June 30, 2007 110,099,002 $ 110,099 $ 6,644,389 $4,299,266 $ 105,061 $(12,484,628) $ (1,325,813)
============ ============ ============ ========== ============ ============ ============
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(A Development Stage Company)
Consolidated Statements of Operations
Periods ended June 20, 2007 and 2006 and cumulative from the period
January 21, 2004 (date of inception) through June 30, 2007
Cumulative from
Three months ended June 30, Six months ended June 30, Inception through
2007 2006 2007 2006 June 30, 2007
------------ ------------ ------------ ------------ ------------
Revenue -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Wages & salaries 81,138 16,317 177,810 16,317 431,615
Professional fees 23,086 60,477 48,368 63,076 301,409
Consulting fees 1,562,928 8,276 3,451,436 1,461,276 5,139,306
General & administrative expenses 7,448 9,720 29,612 12,614 221,417
Amortization 17,948 148,778 17,948 148,778 5,373,982
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 1,692,548 243,568 3,725,174 1,702,061 11,467,729
------------ ------------ ------------ ------------ ------------
Loss from Operations (1,692,548) (243,568) (3,725,174) (1,702,061) (11,467,729)
Interest expenses (41,906) (6,489) (82,638) (6,489) (206,899)
Discontinued operations -- -- -- -- (810,000)
------------ ------------ ------------ ------------ ------------
Loss before Income Taxes (1,734,454) (250,057) (3,807,812) (1,708,550) (12,484,628)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Loss (1,734,454) (250,057) (3,807,812) (1,708,550) (12,484,628)
Foreign currency translation adjustment 65,362 349 102,645 (319) 105,061
------------ ------------ ------------ ------------ ------------
Total Comprehensive Loss (1,669,092) (249,708) (3,705,267) (1,708,869) (12,379,567)
============ ============ ============ ============ ============
Net Loss
Per common share-Basic (0.02) (0.00) (0.04) (0.02)
Per common share diluted (0.02) (0.00) (0.04) (0.02)
Weighted average number of shares
outstanding during the period - Basic 103,096,789 80,775,338 100,694,379 83,412,047
outstanding during the period - Diluted 139,225,075 80,775,338 136,822,665 87,803,331
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(A Development Stage Company)
Consolidated Statements Cash Flows
Periods Ended June 30, 2007 and 2006 and Cumulative
from the period January 21, 2004 (date of inception) through June 30, 2007
Cumulative
from
Inception
Six months ended June 30, through
2007 2006 June 30, 2007
------------ ------------ ------------
Cash Flows from Operating Activities:
Net Loss $ (3,807,812) $ (1,708,550) $(12,484,628)
Adjustments to reconcile net loss to net cash
used by operating activities:
Warrants issued to Laurus -- -- 4,299,266
Shares issued for consulting fees 3,382,500 1,440,000 4,822,500
Amortization of loan costs 17,948 148,778 17,948
Discontinued operations 810,000 Change in working capital accounts:
Accounts payable & accrued liabilities (57,174) 32 141,960
Prepaid expenses (31,771) (4,480) (112,305)
Other assets (493) (216) (5,642)
Prepaid sales and deposits 101,831 -- 101,831
------------ ------------ ------------
Net cash used in operating activities (394,971) (124,436) (2,409,070)
------------ ------------ ------------
Cash Flow from Investing Activities
Mortgage receivable loans (583,727) -- (1,040,864)
------------ ------------ ------------
Cash Flow from Financing Activities:
Payment of loan costs (93,178) (1,056,768) (93,178)
Loan payable to related party, net (11,695) -- 1,019,447
Proceeds from credit line -- 1,056,768 --
Mortgage payable 523,745 -- 958,397
Proceed from sale of shares 25,646 -- 1,121,988
Proceeds from related company debt 235,461 129,563 389,958
------------ ------------ ------------
Net cash provided by financing activities 679,979 129,563 3,396,612
------------ ------------ ------------
Net Decrease in Cash (298,719) 5,127 (53,322)
Foreign exchange on cash balances 102,645 (319) 105,061
------------ ------------ ------------
(196,074) 4,808 51,739
Cash beginning period 247,813 -- --
------------ ------------ ------------
Cash end of period $ 51,739 $ 4,808 $ 51,739
============ ============ ============
The accompanying notes are an integral part of these financial statements
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Reliant Home Warranty Corporation
(a development stage company)
Notes to financial statements
June 30, 2007
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 June 30, 2007 and the results of operations
for the six month periods ended June 30, 2007 and 2006, and for the period
from inception (January 21, 2004) through June 30, 2007, of 1604494 Ontario
Inc. under the name of the Company. The reverse merger was 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 were expensed as incurred.
Development Stage Activities
Upon completion of the reverse merger, the Company changed the nature of
its business to offering a proprietary line sub prime residential mortgage
programs, designed for marketing to purchasers and refinancers of
residential real estate. While the Company became operational and committed
full scale of solicitation of sub-prime Canadian based mortgage
applications, in recognition of the downturn in the U.S. sub prime
residential market and the potential for development affecting an otherwise
healthy Canadian market, the Company prudently delayed processing and
closing other than a few applications. As a result the Company was able to
fully test and tweak its system while avoiding the misfortune that occurred
in the U.S. market and latterly to a lesser extent the Canadian one.
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 amendment No.1 Form 10-KSB for
the fiscal year ended December 31, 2006, as filed with the Securities and
Exchange Commission.
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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. For purposes of
the statement of cash flows, the Company considers all highly liquid debt
and other instruments with an original maturity of three months or less to
be cash equivalents.
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. In accordance with FAS
91, mortgage loan fees and related loan costs are offset, and the net
amount is deferred and amortized over the lives of the loans.
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
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
cash and equivalents, mortgages notes, and notes payable approximate fair
values because of the immediate or short-term maturities of the financial
instruments and because the prevailing interest rates are market rates.
g) Net Loss (Earnings) per Share
Net loss (earnings) per share is computed by dividing the net loss by the
weighted average number of common shares outstanding for the period.
Diluted net loss reflects the potential dilution of securities that could
share in the earnings. Potentially dilutive securities for the six months
ended June 30, 2007 consist of the 36,128,286 shares of common stock under
Warrant (see note 3). There were no potentially dilutive securities for the
period ended June 30, 2006.
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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 FAS 123(R), 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 FAS 52.
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 Loss
The Company reports comprehensive loss in accordance with FAS 130. The
components of comprehensive loss include foreign currency translation
adjustments.
k) Income Taxes
The Company accounts for income taxes in accordance with FAS 109 using the
asset and liability approach, which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax basis of
such assets and liabilities. The Company has approximately $12 million in
net operating losses as of June 30, 2007, and a valuation allowance equal
to the tax benefit of the accumulated net operating losses has been
established since it is uncertain that future taxable income will be
realized during the applicable carry-forward periods. The net operating
loss carryforwards may be limited under change of control provisions of
taxing authorities.
l) Loan Costs
Loan costs represent costs incurred to secure financing and are being
amortized over the term of the related loan.
m) Recent Accounting Pronouncements
In September 2006, the FASB issued FAS No. 157, "Fair Value Measurements",
which establishes a framework for reporting fair value and expands
disclosure about fair value measurements. FAS 157 is effective for the
Company's 2008 fiscal year. The Company is currently evaluating the impact
of this standard on its financial statements.
In February 2007, the FASB issued FAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115. FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value and is
effective for fiscal years after November 15, 2007. The Company is
currently evaluating the impact of adopting FAS 159 on its financial
statements.
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n) 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
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 44,438,786 to
2,019,945 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 net loss per share.
March 24, 2005, pursuant to stock exchange agreement, BSA Group Limited in
trust for the shareholders of the Company, acquired control of 1604494
Ontario Inc. by acquiring from treasury 76,000,000 come 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 (the "Note") in the aggregate
principal amount of $25 million and a warrant to purchase up to 36,128,286
shares of the Company's common stock at a price of $.001 per share (the
"Warrant").
As the Company did not have a sufficient number of authorized but un-issued
common shares to issue upon the full exercise of the Warrant, it obtained
shareholder and State of Florida approval to increase its authorized number
of common shares from 100 to 200 million shares.
The Company agreed to use the proceeds of the Note solely for the purposes
of funding certain mortgage loans to its customers, except for $1,056,768
that the Company paid to Laurus Capital Management, LLC, the investment
advisor to Laurus and to other third parties as reimbursement for their due
diligence and legal fees and expenses incurred in connection with the
transaction. These costs, which were paid from draws on the Note, were
capitalized as loan costs. The Note was 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 were 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 were: expected term of 90 days,
volatility of 219.8%, and interest rate of 4.47 and yield of zero. The
expected term was based on the requirements of the Security & Purchase
Agreement. The expected volatility was based on the historical volatility
of the Company's common stock over a one year period preceding the
transaction. The dividend yield of zero was based on the fact that the
Company had never paid cash dividends and had no intention to pay cash
dividends. The risk free interest rate was derived from average US treasure
rates.
The following table summarized the capitalized loan costs:
Fees paid to Laurus Capital Management, LLC $ 915,000
Fees paid to other third parties (primarily legal fees) 141,768
------------
1,056,768
Value of Warrant issued to Laurus 4,299,266
------------
$ 5,356,034
-10-
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. As a result of the decision of Laurus not to
proceed with the transaction, the Company wrote off the capitalized loan
costs in the September 2006.
The Company and Laurus entered into negotiations respecting the resolution
of the relationship created by the Security and Purchase Agreement. The
results of these negotiations, which allowed the Company to proceed with
its business, ultimately led to the Company in December 2006 issuing
2,190,944 of its restricted common shares to Laurus in consideration of
Laurus discharging the $1,056,768 debt and releasing its secured position
and claims against Company. In addition, Laurus retained the rights to the
36,128,286 common shares from the Warrant; however, it is prevented from
selling such shares without the consent of the Company. The Company has no
intention of allowing Laurus to sale the shares and its shareholders are
proceeding with legal action to nullify the Warrant.
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.
In November 2006, Main Street Capital LLC, as agent for the Company,
obtained subscriptions for two tranches of the Company's restricted common
shares from an aggregate of 14 individuals for net proceeds of $65,946
after fees of $28,134. These restricted common shares were issued by the
Company from its treasure pursuant to Section 144 of the Securities Act
1933 and subject to certain statutory restrictions from transfer. The
issuance of 638,276 shares for this transactions occurred in January 2007.
In January 2007, the company issued 19,000,000 free trading common shares
from its treasury pursuant to the exemption from share registration
provided by Section SB-8 of the Securities Act 1933 to Julian Brown, a
Bahamian resident & consultant. The common shares so issued were in
consideration of services rendered and to be rendered by Mr. Brown pursuant
to consulting agreement entered into by the Company and Mr. Brown. Mr.
Brown provided a combination of consulting, marketing and technical support
services to the Company on respect of the launch of its activities in the
Caribbean basis and South America.
In March 2007, the Company issued 250,000 restricted common shares in
consideration of consulting fees.
During April 2007, the Company issued 2,000,000 restricted common shares
from its treasure pursuant to the exemption from share registration
provided by section SB-8 of Securities act 1933 to Mr. Boyd Soussana, a
Canadian resident. The 2,000,000 shares were in consideration of the
services rendered by Mr. Soussana as a President and CEO of the Company
4. Due to and Loans Payable to Related Parties
Due to related parties represents advances to the Company from 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.
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 on July 18, 2008.
-11-
5 Mortgage Notes
In December 2006, the Company commenced its mortgage warranty operations
and through June 30, 2007 has written six mortgage loans totaling
$1,106,855. The loans carry interest rates of 7.35% to 7.85%, have terms of
25 to 50 years, are receivable in monthly payments totaling approximately
$6,500 and collateralized by real estate. The Company financed its loans to
its customers with loans from Morban Limited totaling $506,500 and Firm
Capital totaling $510,904. Interest on the loans is payable monthly at the
prime rate plus 3%. The principal is due during 2007 and 2008. The loans
are secured by the Company's mortgage notes with its customers.
5 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 approximately $12.5 million since inception
including $3.8 million for the six month period ended June 30, 2007, 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 presently pursuing
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.
-12-
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.
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
-13-
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
Ontario 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 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. Boyd
Soussana served Company for two years and resign in July 2007.Jules Loeb, the
industrialist, was appointments as President and Chairman of the Company from
July 23, 2007.
-14-
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. Paul Burden has resigned at July 23, 2007, the
same date Anthony Florjancic was appointed a member of the Board . 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 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").
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.
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, 2008. 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
-15-
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. The Company and Laurus negotiated a settlement, which
allowed the Company to proceed with its business and ultimately led to the
Company in December 2006 issuing 2,190,944 of its restricted shasres to Laurus
in consideration of Laurus discharging the Company's debt totaling $1,056,768.
In addition, Laurus retained the right to the 36,128,286 common shares from the
warrant.
In January 2007, the Company issued 19,000,000 of its free-trading shares to
Julian Brown for consulting services.
In April 2007, the Company issued 2,000,000 restricted common shares to Boyd
Soussana.
In July 2007, Boyd Soussana resigned and was replaced by Jules Loeb as President
and chairman.
RESULTS OF OPERATIONS
Results for the six months ended June 30, 2007
Revenue for the six months ended June 30, 2007 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
$3,725,174 for the six month period ended June 30, 2007 compared to $1,702,061
for the same period in 2006. This increase was due primarily 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 six month period ending June 30, 2007 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 resulted in
a net loss $3,807,812 during the six months of 2007.
The Company operations have been impacted by adverse American mortgage market
conditions. As a result, rating agencies have downgraded most sub prime mortgage
pools. The Canadian capital market has also experienced a decreased appetite for
sub prime mortgage pools. New requirements mandate large amounts of capital
reserves for first loss. This level of capital was not previously required by
buyers of the Company's existing pool of mortgages. The Company is working to
secure a first loss pool mortgage indemnity policy within Canada. This will take
longer than anticipated as there are no insurers in Canada currently providing a
policy to the sub prime market. This inability to re-sell the mortgage pools has
resulted in a continued company capital drain and affects the Company's ability
to make a profit. The Company will continue working with insurance providers and
potential buyers of Reliant's mortgage pools to obtain the required first loss
pool requirement.
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.
-16-
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.
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 2,019,945.
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 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").
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.
-17-
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
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. The Company and Laurus negotiated a settlement, which
allowed the Company to proceed with its business and ultimately led to the
Company in December 2006 issuing 2,190,944 of its restricted shasres to Laurus
in consideration of Laurus discharging the Company's debt totaling $1,056,768.
In addition, Laurus retained the right to the 36,128,286 common shares from the
warrant.
On November 2006 Main Street capital LLC, as an agent for the Company, obtained
subscription for two tranches of the Company's restricted common shares from an
aggregate of 14 individuals for the net proceed of $65,946 after fees of $28,134
These restricted common shares were issued by the Company from its treasure
pursuant to section 144 of the Securities Act 1933 and subject to certain
statutory restrictions from transfer. The issuance of 638,276 shares for this
transaction occurred in January 2007.
During January 2007, the company issued 19,000,000 free trading Common shares
from its treasury pursuant to the exemption from share registration provided by
Section SB-8 of the Securities Act 1933 to Julian Brown, a Bahamian resident &
financial service marketing consultant. The common shares so issued were in
consideration of services rendered and to be rendered by Mr. Brown pursuant to
consulting agreement entered into by the Company and Mr. Brown. Mr. Brown
provided a combination of consulting, marketing and technical support services
to the Company on respect of the launch of its activities in the Caribbean basis
and South America.
In March 2007, the Company issued 250,000 restricted common shares in
consideration of consulting fees.
During April 2007, the Company issued 2,000,000 restricted common shares from
its treasure pursuant to the exemption from share registration provided by
section SB-8 of Securities act 1933 to Mr. Boyd Soussana, a Canadian resident.
The 2,000,000 shares were in consideration of the services rendered by Mr. Boyd
Soussana as a President and CEO of the Company
The Company's financial status lacks the characteristics of a going concern. Due
to its financial condition, the Company intents to continue to seek loans, and
raise funds to meet its needs. As Reliant is only in the developing stage of
exploiting its proprietary financial systems and "know how" it has only
generated minor revenue and no profit from its operations. Its ability to
operate as a going concern is depended upon its ability to generate revenue and
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.
-18-
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
The Company has not made any changes to its internal control during the first
quarter that has materially affected, or is reasonable likely to materially
affect, our internal control over the financial reporting. The Company has not
identified any significant deficiencies or material weaknesses or other factors
that could significantly affect these controls, and therefore, no need for
corrective action to be taken.
-19-
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
From time to time, Reliant may be involved as a plaintiff or defendant in
various minor 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 officer which
involved, a pending material 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.
Two minority shareholders of the Company commenced a representative legal action
during the second quarter in the Supreme Court of Justice (Ontario) on behalf of
all common shareholders of the Company against Laurus Master Fund, et ol
(Laurus) claiming damages from Laurus as well as an order prohibiting Laurus
from exercising the Warrant granted to them by the Company. On advice of counsel
pending the outcome of the litigation, the Company's transfer agent has been
notified to defer processing any and all attempts by Laurus to exercise
Company's Warrant
ITEM 2 Unregistered Sales of Equity Securities and use of Proceeds
None
ITEM 3 Defaults Upon Senior Notes
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 March 31, 2007.
ITEM 5 Other Information
None
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
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
-20-
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 Aug 19, 2007 /s/ Jules Loeb
---------------------------------
(Signature) Jules Loeb
Chief Executive Officer
Date Aug 19, 2007 /s/ Stephen Hamilton
---------------------------------
(Signature) Stephen Hamilton
Chief Financial Officer
-21-