Business context and reporting period
The supplied filing is REO Plus, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013—not a Boston Omaha Corp. filing. REO Plus reports that its sole investment is a 40% interest in Ananda Investments, LLC, which owns and operates a Houston property. REO Plus had no other operations.
Financial results and liquidity
- REO Plus: No operating revenue was reported. Professional fees were $36,065, up from $21,504 in Q1 2012. Equity income from Ananda was $2,814, and interest expense was $5,931. Net loss was $39,182, or $0.02 per share, versus a $24,481 loss, or $0.01 per share.
- Cash flow: Operating cash used was $39,163, compared with $29,266 in Q1 2012. Stockholder note proceeds of $50,000 resulted in a net cash increase of $10,837. Cash at March 31 was $17,152.
- Financial position: Total assets were $87,826, including a $69,736 investment in Ananda. Current liabilities were $458,051, including $430,960 of stockholder notes and $7,110 of accrued stockholder interest. Stockholders’ deficit was $370,225. Management classified the stockholder notes as current because the noteholders include the CEO, despite extended or later contractual maturities.
- Ananda: Q1 rental revenue was $24,741 versus $20,557 in Q1 2012; net income was $7,035 versus $2,787. Its mortgage payable was $410,686 at March 31, 2013, secured by its Houston property and bearing 6.25% interest. Ananda reported $94,465 cash and $416,334 total liabilities.
Material changes, outlook, and risks
- REO Plus’s net loss widened by $14,701 year over year, primarily alongside higher professional fees; the filing says nearly all professional fees related to audit, accounting, and legal work for its first annual report. Ananda’s higher rental income contributed to increased affiliate earnings.
- REO Plus reported an accumulated deficit of $425,225 and stated that it had not produced earnings from operations. Management said these conditions raise substantial doubt about the company’s ability to continue as a going concern. It expects to seek additional capital, including a private equity offering, but has no binding financing commitments and gives no assurance financing will be available.
- The controlling shareholder indicated an intention to cover excess expenses for the next 12 months, but is not legally obligated to do so. The company says inability to obtain financing could prevent further acquisitions, impair its ability to remain in business, or force asset sales or liquidation. It had no specific acquisition under consideration.
- Disclosure controls had a material weakness due to lack of segregation of accounting duties resulting from limited personnel. The filing reports no corrective actions and no material changes in internal control during the quarter.
- The filing provides no formal financial guidance. Management described real estate market trends as uncertain and noted that financing can be difficult to obtain and may require larger down payments. Ananda disclosed future minimum lease rents totaling $453,003 through August 2017.
Key facts for investors to verify
- Confirm the intended issuer: the provided filing is for REO Plus, Inc., not Boston Omaha Corp.
- Review the going-concern disclosure, available liquidity, and the extent to which operations depend on discretionary funding from the controlling shareholder.
- Verify the terms and current-versus-long-term classification of stockholder notes, including the CEO’s control over the company and the reported maturity extensions.
- Assess Ananda’s mortgage maturity: the filing states the loan matures in September 2014, with $397,040 shown as due in the six months ending September 30, 2014.
- Note that the MD&A labels its comparison periods as March 2013 versus September 2012, while the financial statements compare March 2013 with March 2012; the statements provide the clear year-over-year figures summarized above.
- Consider the disclosed material weakness in accounting controls and the absence of reported corrective actions.