Filing summary
Registrant and period: The supplied filing is REO Plus, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2014—not a filing identified in its text as Boston Omaha Corp. Verify the company and filing before relying on this summary. Unless stated otherwise, amounts are U.S. dollars.
Business context and financial results
REO Plus was formed to invest in real estate and reported a 40% interest in Ananda Investments, LLC, which owns a Houston commercial property. The company also began consulting services in 2013; in 2014 those services were provided by its CEO to one related-party client. REO Plus reported no other operating activities.
- Q2 2014: Consulting revenue was $5,467 versus none in Q2 2013. Professional fees were $9,818 versus $13,505. Operating loss was $4,351; equity-method loss from Ananda was $7,769 and interest expense was $7,067. Net loss was $19,187, or $0.01 per share, versus a $18,762 loss, also $0.01 per share.
- First six months of 2014: Revenue was $11,966 versus none in the comparable 2013 period. Professional fees fell to $39,086 from $49,570. Operating loss was $27,120; equity-method loss was $10,656 and interest expense was $13,760. Net loss was $51,536, or $0.03 per share, versus a $57,944 loss, also $0.03 per share.
- Cash flow and liquidity: Six-month operating cash use was $46,013, partly offset by $20,000 net financing proceeds from stockholder notes. Cash fell by $26,013 to $1,799 at June 30, 2014, from $27,812 at year-end 2013. Current assets were $2,799 against current liabilities of $507,348.
- Debt and equity: Stockholder notes totaled $490,960, including a $190,000 note bearing 7% and a consolidated $290,960 note bearing 5%. The balance sheet reported a $452,137 stockholders’ deficit and a $507,137 accumulated deficit. Ananda separately had $392,085 in bank mortgage debt at 5.49%, secured by its Houston property; $19,365 was current.
Material changes and affiliate performance
The company’s losses narrowed year over year for the six-month period, mainly as consulting revenue began and professional fees declined. In Q2, however, the net loss was slightly larger than in 2013, as the improved operating result was outweighed by Ananda’s swing to a loss. Ananda’s primary tenant left in Q3 2013: its six-month rental revenue fell to $13,200 from $49,482, and it recorded a $26,640 net loss versus $9,995 net income in the prior-year period. REO Plus’s equity-method investment declined to $52,412 from $63,068 at December 31, 2013.
Outlook, risks, and unusual items
- Management said it intended to seek additional real estate acquisitions but had no specific acquisition with written offers, no binding financing commitments, and no assurance that financing or transactions would occur. Acquisitions would likely require private equity funding and debt or seller financing.
- The filing identifies substantial doubt about REO Plus’s ability to continue as a going concern. Management expected to seek private equity funding and said its controlling shareholder intended to continue lending for expenses over the next 12 months, but was not legally obligated to do so.
- Consulting revenue came from one client related to the CEO, who was also the company’s sole director and officer. Interest expense was owed to the CEO and an entity he controlled; stockholder notes are a major funding source.
- Management described real estate market conditions as favorable in targeted areas but cautioned that rents, occupancy, the economy, and financing conditions could change; it gave no quantified company earnings or revenue guidance.
- Disclosure controls had a material weakness due to lack of segregation of accounting duties because of limited personnel. The filing reported no corrective actions and no material changes in internal control during the period.
Important facts to verify
- Confirm that REO Plus, Inc.—rather than Boston Omaha Corp—is the intended issuer and that the filing period is Q2 2014.
- Review the going-concern disclosure, cash position, near-term funding needs, and whether promised related-party support continued after the filing date.
- Verify the status, terms, maturity, and related-party nature of stockholder notes, including the $10,000 note listed as due April 7, 2014.
- Assess Ananda’s tenant occupancy, rental income, property debt, and the value and recoverability of REO Plus’s affiliate investment.
- Check the concentration and related-party terms of consulting revenue and the remediation status of the accounting-duty segregation weakness.