Filing summary
Issuer and period: The filing provided is REO Plus, Inc.’s Form 10-K for the fiscal year ended December 31, 2013—not a filing for BOSTON OMAHA Corp. The requested “2013 Q4” period is covered only as part of the full fiscal year; this is not a quarterly report. The issuer mismatch should be resolved before relying on this summary.
Business context
REO Plus is a small, early-stage real estate company with one principal investment: a 40% interest in Ananda Investments, LLC, which owns a 5,793-square-foot property in Houston’s Montrose district. In September 2013, REO Plus began consulting for one related-party client, a company in which its sole director and officer, Richard J. Church, owns approximately 14%. REO Plus reported no employees; Mr. Church is its sole director and officer and owns approximately 95% of its common stock.
Financial results and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Consulting revenue | $33,549 | $0 |
| Professional fees | $72,983 | $88,645 |
| Operating loss | $39,434 | $88,645 |
| Equity in affiliate earnings (loss) | $(3,854) | $13,138 |
| Interest expense | $26,270 | $19,776 |
| Net loss | $69,558 | $95,283 |
| Loss per share | $0.04 | $0.05 |
| Operating cash flow | $(68,503) | $(99,338) |
REO Plus’s net loss narrowed year over year, primarily because consulting revenue began and professional fees declined; higher interest expense and the reversal from affiliate income to affiliate loss partly offset the improvement. Consulting revenue came from a single related-party client, so it should not be treated as diversified or necessarily recurring. The filing does not provide a meaningful consolidated revenue margin measure.
At year-end, REO Plus reported cash of $27,812, current assets of $30,812, total assets of $93,880, current liabilities of $494,481, and a stockholders’ deficit of $400,601. The resulting current ratio was approximately 0.06x. Notes payable to stockholders were $470,960, with $17,021 of accrued interest reported separately. The company’s cash increased from $6,315, supported by $90,000 of new stockholder-note proceeds, despite negative operating cash flow.
Ananda, the unconsolidated affiliate, reported 2013 rental revenue of $66,035, net loss of $9,636, and operating cash flow of $21,547, compared with 2012 revenue of $105,122 and net income of $32,845. Its primary tenant left in the third quarter of 2013. Ananda reported cash of $96,009 and mortgage debt of $401,253 at year-end; the mortgage bears 5.49% interest, is secured by the property, and matures in 2028.
Material changes, outlook, and risks
- Ananda’s loss of its primary tenant materially reduced rental revenue and contributed to REO Plus’s deterioration in affiliate results. Ananda was seeking to sell the property or find a replacement tenant; the outcome was uncertain.
- Management anticipated continued improvement in Houston real estate and expected development-supporting business conditions to remain steady through 2016, but stated there were no assurances. No quantified company revenue, earnings, or acquisition guidance was provided.
- Management said the company would need private equity funding and seller or third-party financing to make acquisitions. It had no binding commitments or readily available additional financing and warned that failure to obtain funding could prevent acquisitions or threaten continued operations. Church’s future funding support was voluntary, not an obligation.
- The independent auditor’s report highlighted substantial doubt about REO Plus’s ability to continue as a going concern, citing accumulated losses and lack of operating earnings. The statements contain no adjustments for a possible failure to continue.
- Material governance and control risks include one non-independent director/officer, management’s approximately 95% ownership, related-party consulting and financing, and a property-interest acquisition from Church that was not arm’s-length. Management identified a material weakness in internal control over financial reporting due to inadequate segregation of duties, lack of an independent audit committee, and insufficient independent directors; it reported no immediate remediation plan.
- The company reported no established trading market for its shares and no intention to pay dividends in the foreseeable future. It also disclosed risks related to tenant concentration, property illiquidity, real estate market conditions, environmental and regulatory compliance, and potential dilution from future securities issuance.
Important facts to verify
- Confirm the intended issuer: the supplied filing names REO Plus, Inc., not BOSTON OMAHA Corp.
- Review the audited financial statements and subsequent-event disclosures, including the February 2014 consolidation of insider loans and the reported $30,000 additional borrowing.
- Verify the amount, terms, priority, and related-party status of all stockholder debt; the filing reports $470,960 of year-end notes payable and separately describes later consolidation of insider borrowing.
- Assess Ananda’s tenant replacement or property-sale progress, current occupancy, and the value and saleability of the property.
- Evaluate the going-concern uncertainty, dependence on Church for financing, and the company’s ability to raise outside capital.
- Review remediation of the disclosed material weakness, related-party transaction oversight, and any subsequent changes in ownership, financing, or business plans.