Filing and business context
Entity discrepancy: The request identifies Boston Omaha Corp., but the supplied 10-K is for REO Plus, Inc., a Texas corporation. This summary covers the filing provided. It reports the fiscal year ended December 31, 2014, with 2013 comparisons; it is an annual report, not a quarterly filing.
REO Plus pursued real estate acquisitions and held a 40% interest in Ananda Investments, LLC, which owns a 5,793-square-foot Houston property. The company also earned consulting revenue from one related-party client. It had no employees; Richard J. Church was its sole officer and director and provided its labor.
Financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Consulting revenue | $43,874 | $33,549 |
| Professional fees | $66,715 | $72,983 |
| Operating loss | $22,841 | $39,434 |
| Equity loss from Ananda | $15,805 | $3,854 |
| Interest expense | $28,132 | $26,270 |
| Net loss | $66,778 | $69,558 |
| Basic and diluted loss per share | $0.04 | $0.04 |
| Operating cash used | $49,851 | $68,503 |
Revenue increased and professional fees declined, narrowing the net loss modestly. The deterioration in Ananda’s results and higher interest expense offset part of that improvement. The filing reports no income-tax benefit.
At year-end, cash was $1,461 (versus $27,812 in 2013), total assets were $48,724, and stockholders’ deficit was $467,379. Financing provided net cash of $23,500; cash declined by $26,351 during the year. Liabilities totaled $516,103, including $494,460 of notes payable to stockholders and $21,270 of accrued stockholder interest. The balance sheet classifies all reported liabilities as current.
The company had no binding commitment or readily available source of additional financing. Church indicated he intended to continue lending for expenses over the next 12 months, but was not obligated to do so. The auditor’s report states that accumulated losses raise substantial doubt about REO Plus’s ability to continue as a going concern.
Material changes and related property performance
Ananda’s 2014 net revenues were $38,400 after commissions, down from $66,035 in 2013. It recorded a $17,755 operating loss and a $39,512 net loss, compared with 2013 operating income of $14,424 and a net loss of $9,636. The filing attributes weaker revenue to loss of its primary tenant and says full rent on the property did not resume until January 2015. Ananda’s year-end mortgage balance was $382,719, at 5.57%, secured by the property and maturing in June 2028.
REO Plus and Church jointly and severally guarantee Ananda’s mortgage. REO Plus could be liable for some or all unpaid principal and interest if Ananda defaults. Ananda reported $72,873 in cash and $405,102 in total liabilities at year-end. A five-year commercial lease commenced November 1, 2014, with disclosed minimum rents totaling $330,600 through 2019; a residential lease ran through June 30, 2015.
REO Plus’s $190,000 note to Church for the Ananda interest remained outstanding, bears 7% interest, and has a balloon payment due January 1, 2020. The acquisition was a related-party transaction; the filing notes it may not have been on arm’s-length terms. Separate unsecured operating loans from Church and an affiliated entity are also disclosed, including a consolidated note at 5% due February 2017.
Outlook, risks, and controls
Management cited the late-2014 decline in oil prices as a threat to Houston’s economy, property values, rents, occupancy, and real-estate financing. It expected a more cautious acquisition market through 2015 and was evaluating opportunities individually, but gave no quantified forecast. Its acquisition strategy depends on raising private equity and obtaining seller or third-party financing; neither is assured. Management also noted that lower interest rates could support property financing.
Key risks include the company’s limited operating history and single meaningful property interest, dependence on one related-party consulting client, lack of capital, illiquid real estate assets, and reliance on Church, who owns approximately 95% of the common stock. The common stock had no established public market, and the company did not expect to pay dividends in the foreseeable future. No pending legal proceedings or off-balance-sheet arrangements were reported.
Management identified material weaknesses in internal control over financial reporting, including lack of segregation of accounting duties, no independent audit committee, and insufficient independent directors. It said it could not immediately remediate these weaknesses because of limited financial and personnel resources. The auditor issued an unqualified opinion on the financial statements but did not attest to internal controls.
Investor verification priorities
- Confirm the issuer: the supplied filing is REO Plus, Inc., not Boston Omaha Corp.
- Assess the going-concern warning, near-minimal cash balance, accumulated deficit, and reliance on discretionary related-party funding.
- Review the related-party property acquisition, loan terms, outstanding balances, and the company’s joint and several guarantee of Ananda’s mortgage.
- Verify Ananda’s tenant status, lease commencement and rent collections after January 2015, and the property’s operating performance.
- Evaluate the material weaknesses in financial controls and whether they were subsequently remediated.