Business context and reporting period
Important identity discrepancy: The request identifies Boston Omaha Corp, but the supplied Form 10-Q is for REO Plus, Inc. It reports the quarter and six months ended June 30, 2013, and is unaudited. REO Plus reports that its sole operating investment is a 40% interest in Ananda Investments, LLC, which owns a Houston commercial rental property. REO Plus checked “No” to having filed all required Exchange Act reports during the preceding 12 months.
Financial performance and position
- REO Plus, Q2 2013: No company operating revenue is reported. Professional fees were $13,505; equity income from Ananda was $1,184; related-party interest expense was $6,441; net loss was $18,762, or $0.01 per share. Q2 2012 net loss was $29,386.
- REO Plus, first half 2013: Professional fees were $49,570; equity income from Ananda was $3,998; interest expense was $12,372; net loss was $57,944, or $0.03 per share, versus a $53,867 loss in first half 2012.
- Ananda, first half 2013: Rental revenue was $49,482, up from $37,014; net income was $9,995, versus $590. Q2 revenue was $24,741 and net income was $2,960, compared with $16,457 revenue and a $2,197 loss in Q2 2012. Revenue gains reflected a higher renewed lease rate and collection of the full stipulated rent.
- Cash flow: REO Plus used $70,021 in operating cash during the first half, funded by $70,000 of stockholder-note proceeds; cash ended at $6,294, versus $6,315 at year-end 2012. Ananda generated $15,637 from operations and repaid $12,133 of long-term debt; its cash was $99,019.
- Liquidity and debt: REO Plus reported $466,201 in current liabilities, including $450,960 in stockholder notes and $9,198 in accrued stockholder interest, against $6,294 in current assets. Stockholders’ deficit was $388,987. Ananda had $410,173 of mortgage debt, including $18,340 current, and the mortgage was described as fixed through June 2028.
Material changes versus comparable periods
REO Plus’s Q2 loss narrowed year over year, chiefly as professional fees fell from $23,572 to $13,505 and its affiliate moved from a loss to income. For the first half, however, REO Plus’s loss widened by $4,077, as professional fees and interest expense increased. Ananda’s rental income and profitability improved in both the quarter and first half; its operating expenses also increased.
Outlook, risks, and unusual items
- REO Plus gave no specific acquisition or earnings guidance. It is evaluating potential real-estate acquisitions but reported no binding acquisition agreement and no binding commitment or readily available source of additional financing.
- The company says it needs additional capital to pursue acquisitions and may be unable to obtain financing on acceptable terms; it warns that it could be unable to continue operating or could be forced to sell assets or liquidate.
- Controlling shareholder and sole executive Richard J. Church indicated he intended to fund excess expenses for the next 12 months, but has no legal obligation to do so. Most REO Plus debt and interest are owed to Church and an entity he controls.
- Management disclosed a material weakness in financial procedures: accounting duties are not segregated because of limited personnel. No corrective actions had been taken.
- Management described real-estate market conditions and future trends as uncertain. It also cautioned that interim results are not necessarily indicative of full-year results.
Key facts for investors to verify
- Confirm the issuer: the supplied filing is REO Plus, Inc., not Boston Omaha Corp.
- Check REO Plus’s reporting-compliance status, given its “No” response regarding timely filing of required reports.
- Assess the company’s ability to meet obligations with minimal cash, a large working-capital shortfall, and dependence on unsecured support from its controlling shareholder.
- Review the terms, maturity, and repayment requirements of stockholder notes and Ananda’s mortgage; the filing text does not provide a clear maturity for REO Plus’s stockholder notes.
- Evaluate the lease’s durability and rent collections underlying Ananda’s reported improvement, and monitor the disclosed internal-control weakness.