Filing identity and period
Important identity discrepancy: The supplied metadata names BOSTON OMAHA Corp, but the filing identifies the registrant as REO Plus, Inc. This is an unaudited Form 10-Q for the quarter ended September 30, 2013, with comparative results for the three and nine months ended on that date. The filing states that REO Plus had not filed all required Exchange Act reports during the prior 12 months.
REO Plus had a 40% interest in Ananda Investments, LLC, which owns a Houston commercial property. REO Plus began providing consulting services in the third quarter; it reported no other operating activity beyond its Ananda investment.
Financial results and liquidity
| Metric | Q3 2013 | Nine months 2013 | Comparable 2012 |
|---|---|---|---|
| Revenue | $9,773 | $9,773 | $0 |
| Operating loss | $640 | $50,210 | $22,600 and $67,676 loss, respectively |
| Net loss | $11,577 | $69,521 | $17,554 and $71,421 loss, respectively |
| Loss per share | $0.01 | $0.04 | $0.01 and $0.04, respectively |
For the first nine months, operating cash outflow was $84,702, versus $78,017 in 2012. Financing provided $90,000 from stockholder notes, leaving cash of $11,613 at September 30, up from $6,315 at year-end 2012. Trade receivables were $9,773; total assets were $88,123.
Current liabilities totaled $488,687, including $280,960 in stockholder notes, a separate $190,000 stockholder note, and $11,877 of accrued stockholder interest. These notes are presented as current because the holders include the CEO, despite stated maturities extending into 2016–2020. Stockholders’ deficit was $400,564; accumulated deficit was $455,564. The filing provides no meaningful company-level margin measure given the limited revenue and activity.
Material changes and affiliate performance
- New consulting fees generated $9,773 in Q3 from a single client; the company disclosed that its CEO owns approximately 14% of that client.
- Ananda lost its primary tenant early in Q3. Its revenue fell to $6,653 in Q3 from $43,367, and it recorded a $10,458 net loss, compared with $25,401 net income in Q3 2012. For nine months, Ananda reported revenue of $56,135 and a $463 net loss, versus $80,381 revenue and $25,991 net income in 2012.
- REO Plus’s Q3 and year-to-date losses narrowed compared with 2012, helped by new fee income and lower professional fees. Higher interest expense and the deterioration in Ananda’s results partly offset those improvements.
- Ananda refinanced its mortgage in June 2013 for $410,173 at 5.49%, maturing June 25, 2028; $405,765 remained outstanding at September 30. Ananda generated $18,435 of operating cash flow and paid $16,542 of debt in the first nine months.
Outlook, risks, and controls
Management said Ananda was seeking a replacement tenant or considering a property sale; the outcome was uncertain. REO Plus had no binding financing commitments and said additional capital would be needed for acquisitions and potentially to continue operations. Management anticipated that it could raise working capital through a private equity offering, but gave no assurance of success. The controlling stockholder indicated an intention to cover excess expenses for the next 12 months but had no legal obligation to do so.
The filing states that accumulated losses and the lack of operating earnings raise substantial doubt about REO Plus’s ability to continue as a going concern. No formal financial guidance was provided. The company reported a material weakness in financial procedures due to insufficient segregation of accounting duties and said no corrective actions had been taken. It reported no off-balance-sheet arrangements.
Key facts for investors to verify
- Confirm the registrant and filing attribution: the supplied metadata says BOSTON OMAHA Corp, while the filing is for REO Plus, Inc.
- Verify the reporting-compliance status, given the checked “No” response regarding required Exchange Act reports.
- Assess cash runway and reliance on the controlling stockholder, whose support is not legally committed, as well as the availability and terms of any new financing.
- Track Ananda’s tenant replacement or sale efforts and the effect on rental income, affiliate earnings, and the carrying value of REO Plus’s investment.
- Review the related-party consulting arrangement, stockholder debt classification and terms, and remediation of the disclosed control weakness.