SEC Filing Summary: REO Plus, Inc. (10-Q)
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for REO Plus, Inc. (a Texas corporation in the development stage) for the period ended September 30, 2012. The Company was formed to acquire real estate properties and currently holds a 40% interest in Ananda Investments, LLC, which owns a commercial rental property in Houston, Texas. The Company has no other operations. It is classified as a smaller reporting company and a shell company.
Key Financial Metrics
| Metric | 9 Months Ended Sep 30, 2012 | 9 Months Ended Sep 30, 2011 |
|---|---|---|
| Revenue | $0 (No direct revenue) | $0 |
| Equity in Income of Affiliate | $10,396 | $3,680 |
| Operating Expenses | $67,676 | $45,654 |
| Interest Expense | $14,141 | $9,975 |
| Net Loss | $(71,421) | $(51,949) |
| Cash Balance (End of Period) | $17,636 | $1,878 |
| Total Assets | $81,816 | $55,375 |
| Total Liabilities | $388,997 | $291,135 |
| Stockholders' Deficit | $(307,181) | $(235,760) |
Liquidity & Debt: The Company has significant related-party debt, including $180,960 in notes payable to stockholders and a $190,000 note payable to a related party (Richard J. Church). Cash flow from operations was negative $(78,017) for the nine-month period, offset by financing activities of $95,000.
Material Changes vs. Prior Period
- Increased Expenses: Professional fees increased by $22,022 (from $45,654 to $67,676) primarily due to accounting and legal fees associated with the Company's Registration Statement (Form S-1).
- Higher Affiliate Income: Equity in income from Ananda Investments, LLC increased by $6,716, driven by higher rental revenues at the affiliate level ($80,381 vs. $63,122) due to the collection of past-due rents.
- Widened Net Loss: Despite higher affiliate income, the net loss increased by $19,472 due to the surge in professional fees and interest expense.
- Debt Structure: Notes payable to stockholders increased significantly from $0 to $180,960 during the period, while accounts payable to stockholders were reclassified or paid down.
Outlook, Risks, and Management Commentary
- Going Concern: The filing includes a "Going Concern" warning. The Company has incurred cumulative losses of $185,481 since inception and has no earnings from operations. Continuation is dependent on raising additional working capital via private equity offerings.
- Capital Needs: The Company requires cash for future down payments on real estate acquisitions. It currently has no binding commitments for financing. The controlling shareholder, Richard J. Church, intends to cover expenses for the next 12 months but is under no legal obligation to do so.
- Internal Controls: Management identified a material weakness in internal controls due to a lack of segregation of accounting duties resulting from limited personnel.
- Future Strategy: The Company plans to target distressed commercial, retail, and residential properties, initially in Houston, Texas. It relies on its public status to facilitate fundraising.
Investor Verification Checklist
- Related Party Transactions: Verify the terms and repayment schedules of the $190,000 note to Richard J. Church and the $180,960 in notes to stockholders.
- Affiliate Performance: Confirm the sustainability of Ananda Investments, LLC's rental income and the status of the commercial lease (5-year term commenced Sept 2012).
- Capital Raising: Assess the progress of the private equity offering mentioned as necessary for future acquisitions and operations.
- Internal Controls: Review plans to remediate the material weakness regarding segregation of duties.
- Debt Maturities: Note that several notes payable to stockholders mature in early 2013 (Feb/April), requiring immediate attention to refinancing or repayment.