BOSTON OMAHA Corp - Quarter Report: 2014 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-170054
|
REO PLUS, INC.
|
|
|
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Texas
|
27-0788438
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
3014 McCulloch Circle, Houston, Texas 77056
(Address of principal executive offices)
713-478-3832
(Registrant’s telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
|
Large accelerated filer ¨
|
Accelerated filer ¨
|
|
Non-accelerated filer ¨
|
Smaller reporting company ý
|
|
(Do not check if smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 1,869,000 common shares as of November 12, 2014
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
REO Plus, Inc.
(A Texas Corporation)
Unaudited Financial Statements
For the Nine Months Ended September 30, 2014
REO Plus, Inc.
(A Texas Corporation)
|
Balance Sheets
|
||||||||
|
Unaudited
|
||||||||
|
ASSETS
|
||||||||
|
September 30,
|
December 31,
|
|||||||
|
2014
|
2013
|
|||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 347 | $ | 27,812 | ||||
|
Prepaid expense
|
- | 3,000 | ||||||
|
Total Current Assets
|
347 | 30,812 | ||||||
|
Investment in unconsolidated affiliate
|
47,786 | 63,068 | ||||||
|
Total Assets
|
$ | 48,133 | $ | 93,880 | ||||
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 8,292 | $ | 6,500 | ||||
|
Notes payable, stockholder
|
490,960 | 470,960 | ||||||
|
Accrued interest, stockholders
|
16,071 | 17,021 | ||||||
|
Total Current Liabilities
|
515,323 | 494,481 | ||||||
|
Stockholders’ (Deficit) Equity:
|
||||||||
|
Preferred stock, $.001 par value, 10,000,000 shares
|
||||||||
|
authorized and 0 shares issued and outstanding
|
- | - | ||||||
|
Common stock, $.001 par value, 500,000,000 shares
|
||||||||
|
authorized, 1,869,000 shares issued and outstanding
|
1,870 | 1,870 | ||||||
|
Additional paid-in capital
|
53,130 | 53,130 | ||||||
|
Accumulated deficit
|
(522,190 | ) | (455,601 | ) | ||||
|
Total Stockholders’ (Deficit) Equity
|
(467,190 | ) | (400,601 | ) | ||||
|
Total Liabilities and Stockholders’ (Deficit) Equity
|
$ | 48,133 | $ | 93,880 | ||||
See accompanying notes to the unaudited financial statements.
REO Plus, Inc.
(A Texas Corporation)
|
Statements of Operations
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||
|
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Consulting fees
|
$ | 11,583 | $ | 9,773 | $ | 23,549 | $ | 9,773 | ||||||||
|
Costs and Expenses:
|
||||||||||||||||
|
Professional fees
|
14,892 | 10,270 | 53,978 | 59,840 | ||||||||||||
|
General and administrative
|
- | 143 | - | 143 | ||||||||||||
|
Net (Loss) Income from Operations
|
(3,309 | ) | (640 | ) | (30,429 | ) | (50,210 | ) | ||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Equity in (loss) income of
|
||||||||||||||||
|
unconsolidated affiliate
|
(4,626 | ) | (4,183 | ) | (15,282 | ) | (185 | ) | ||||||||
|
Interest
|
(7,118 | ) | (6,754 | ) | (20,878 | ) | (19,126 | ) | ||||||||
|
Net (Loss) Income before
|
||||||||||||||||
|
Income Tax
|
(15,053 | ) | (11,577 | ) | (66,589 | ) | (69,521 | ) | ||||||||
|
Income Tax (Provision) Benefit
|
- | - | - | - | ||||||||||||
|
Net (Loss) Income
|
$ | (15,053 | ) | $ | (11,577 | ) | $ | (66,589 | ) | $ | (69,521 | ) | ||||
|
Basic Net (Loss) Income per Share
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
|
Diluted (Loss) Income per Share
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.04 | ) | ||||
|
Basic and Diluted Weighted Average
|
||||||||||||||||
|
Shares Outstanding
|
1,869,000 | 1,869,000 | 1,869,000 | 1,869,000 | ||||||||||||
See accompanying notes to the unaudited financial statements.
REO Plus, Inc.
(A Texas Corporation)
|
Statements of Cash Flows
|
||||||||
|
Unaudited
|
||||||||
|
For the Nine Months Ended
|
||||||||
|
September 30,
|
||||||||
|
2014
|
2013
|
|||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net (Loss) Income
|
$ | (66,589 | ) | $ | (69,521 | ) | ||
|
Adjustments to reconcile net (loss) income to cash
|
||||||||
|
used by operating activities:
|
||||||||
|
Equity in (income) loss of unconsolidated affiliate
|
15,282 | 185 | ||||||
|
Decrease (Increase) in trade receivables
|
- | (9,773 | ) | |||||
|
Decrease (Increase) in prepaid expenses
|
3,000 | 2,375 | ||||||
|
Increase (Decrease) in accounts payable and accrued expenses
|
1,792 | (10,125 | ) | |||||
|
(Decrease) Increase in accrued interest, stockholders
|
(950 | ) | 2,157 | |||||
|
Net Cash (Used) Provided by Operating Activities
|
(47,465 | ) | (84,702 | ) | ||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Proceeds from notes payable to stockholders
|
40,000 | 90,000 | ||||||
|
Payments of notes payable to stockholders
|
(20,000 | ) | - | |||||
|
Net Cash Provided by Financing Activities
|
20,000 | 90,000 | ||||||
|
Net Increase (Decrease) in Cash
|
(27,465 | ) | 5,298 | |||||
|
Cash, Beginning of Period
|
27,812 | 6,315 | ||||||
|
Cash, End of Period
|
$ | 347 | $ | 11,613 | ||||
|
Interest Paid
|
$ | 21,828 | $ | 16,969 | ||||
|
Income Taxes Paid
|
$ | - | $ | - | ||||
See accompanying notes to the unaudited financial statements.
REO Plus, Inc.
(A Texas Corporation)
NOTE 1. ORGANIZATION AND BACKGROUND
REO Plus, Inc. (“the Company”) was organized on August 11, 2009 for the purpose of investing in real estate. The Company has had no operations other than its acquisition of 40% of Ananda Investments, LLC, (“Ananda.”)
During September 2013, the Company began providing business consulting services. Such services are rendered to a related party by the Company’s Chief Executive Officer. Revenues from consulting services are attributable to one client.
The accompanying unaudited interim financial statements of REO Plus, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2013 and 2012 contained in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the interim financial statements which would substantially duplicate the disclosure contained in the audited financial statements for years ended December 31, 2013 and 2012 as reported in the Company’s Form 10-K have been omitted.
NOTE 2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has an accumulated deficit of $522,190 since its inception and has not yet produced earnings from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern. Management anticipates that it will be able to raise additional working capital through the issuance of stock through a private equity offering.
The ability of the Company to continue as a going concern is dependent upon the Company’s ability to attain a satisfactory level of profitability and obtain suitable and adequate financing. There can be no assurance that management’s plan will be successful.
REO Plus, Inc.
(A Texas Corporation)
Notes to Unaudited Financial Statements
For the Nine Months Ended September 30, 2014
NOTE 3. INVESTMENT IN AFFILIATE
On January 2, 2010 the Company acquired a 40% interest in Ananda, a Texas limited liability company, which owns a commercial real estate rental property in Houston, Texas. This acquisition was accomplished by the issuance of 934,500 shares of the Company’s common stock valued at $27,500 and the issuance of a promissory note in the amount of $190,000. The investment was acquired from a controlling shareholder and recorded at the controlling shareholder’s cost basis with a resulting “deemed” dividend. The transaction was treated as a transfer between entities under common control as follows:
|
Issuance of common stock
|
$ | 27,500 | ||
|
Issuance of promissory note
|
190,000 | |||
| 217,500 | ||||
|
Deemed dividend
|
(176,700 | ) | ||
|
Purchase price of investment in affiliate
|
$ | 40,800 |
Summary financial results of Ananda for the three months and nine months ended September 30, 2014 and 2013 are as follows:
|
Operations
|
||||||||||||||||
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||
|
Rental income
|
$ | 11,700 | $ | 6,653 | $ | 24,900 | $ | 56,135 | ||||||||
|
Operating expenses
|
(17,810 | ) | (11,458 | ) | (46,677 | ) | (38,090 | ) | ||||||||
|
Other income (expense)
|
(5,455 | ) | (5,653 | ) | (16,428 | ) | (18,508 | ) | ||||||||
|
Net (loss) income
|
$ | (11,565 | ) | $ | (10,458 | ) | $ | (38,205 | ) | $ | (463 | ) | ||||
|
Equity in (loss) income of
|
||||||||||||||||
|
unconsolidated affiliate
|
$ | (4,626 | ) | $ | (4,183 | ) | $ | (15,282 | ) | $ | (185 | ) | ||||
NOTE 3. INVESTMENT IN AFFILIATE (Continued)
|
Summary financial position for Ananda as of September 30, 2014 and December 31, 2013 follows:
|
||||||||
|
Financial Position
|
||||||||
|
September 30,
|
December 31,
|
|||||||
|
2014
|
2013
|
|||||||
|
Cash
|
$ | 71,438 | $ | 96,009 | ||||
|
Other current assets
|
3,349 | 1,644 | ||||||
|
Land, buildings and improvements
|
447,931 | 467,355 | ||||||
|
Other assets
|
7,646 | 8,063 | ||||||
|
Total Assets
|
$ | 530,364 | $ | 573,071 | ||||
|
Deposits, accrued expenses, and deferred income
|
$ | 23,436 | $ | 14,149 | ||||
|
Mortgage payable
|
387,464 | 401,253 | ||||||
|
Total Liabilities
|
410,900 | 415,402 | ||||||
|
Members' equity
|
277,845 | 277,845 | ||||||
|
Accumulated deficit
|
(158,381 | ) | (120,176 | ) | ||||
|
Total Equity
|
119,464 | 157,669 | ||||||
|
Total Liabilities and Equity
|
$ | 530,364 | $ | 573,071 | ||||
|
Investment in unconsolidated affiliate
|
$ | 47,786 | $ | 63,068 | ||||
NOTE 4. NOTES PAYABLE, STOCKHOLDERS
|
At September 30, 2014, notes payable stockholders consist of the following:
|
||||
|
Note payable to an individual, bearing interest at 5% per annum;
|
||||
|
unsecured, interest due annually and principal due February 9, 2017
|
$ | 290,960 | ||
|
Note payable to an individual bearing interest at 5% per annum;
|
||||
|
unsecured, interest due annually and principal due April 6, 2017
|
10,000 | |||
|
Note payable to an individual, bearing interest at 7% per annum:
|
||||
|
unsecured, interest due quarterly and principal due January 1, 2020.
|
190,000 | |||
| $ | 490,960 | |||
NOTE 4. NOTES PAYABLE, STOCKHOLDERS(Continued)
In connection with the Company’s acquisition of its investment in Ananda, the Company executed a note payable to a majority stockholder in the amount of $190,000 with interest accruing at 7% per annum commencing on the first day of the fourth month after Ananda obtained an occupancy permit for the property it owns in Houston, Texas.
The permit was obtained on April 1, 2010, therefore the note of $190,000 began accruing interest on July 1, 2010.
Such stockholder owns a 95% interest in the Company through his 50% ownership of REO and 90% ownership of the other 50% corporate stockholder of REO.
On February 10, 2014, the Company received $30,000 in proceeds from a note due to its majority shareholder. On the same date, the majority shareholder consolidated all of the notes payable to him into one promissory note. The principal balance due to the majority shareholder upon consolidation is $290,960. The note bears interest at 5% per annum and is due February 9, 2017. Accrued interest on the notes of $5,541 was paid at the time of consolidation.
Ananda Investments, LLC
(A Texas Limited Liability Company)
Unaudited Financial Statements
For the Nine Months Ended September 30, 2014
Ananda Investments, LLC
(A Texas Limited Liability Company)
|
Balance Sheets
|
||||||||
|
Unaudited
|
||||||||
|
September 30,
|
December 31,
|
|||||||
|
2014
|
2013
|
|||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 71,438 | $ | 96,009 | ||||
|
Prepaid insurance
|
3,349 | 1,644 | ||||||
|
Total Current Assets
|
74,787 | 97,653 | ||||||
|
Property and Equipment:
|
||||||||
|
Land
|
100,000 | 100,000 | ||||||
|
Building and improvements
|
517,981 | 517,981 | ||||||
|
Total Property and Equipment
|
617,981 | 617,981 | ||||||
|
Accumulated depreciation
|
(170,050 | ) | (150,626 | ) | ||||
|
Property and Equipment, net
|
447,931 | 467,355 | ||||||
|
Other Assets:
|
||||||||
|
Deferred loan costs
|
7,646 | 8,063 | ||||||
|
Total Assets
|
$ | 530,364 | $ | 573,071 | ||||
|
LIABILITIES AND MEMBERS' EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accrued expenses
|
$ | 8,136 | $ | 10,849 | ||||
|
Deferred income
|
5,700 | - | ||||||
|
Current portion of long-term debt
|
19,877 | 18,842 | ||||||
|
Total Current Liabilities
|
33,713 | 29,691 | ||||||
|
Lease deposit
|
9,600 | 3,300 | ||||||
|
Long-term debt
|
367,587 | 382,411 | ||||||
|
Total Liabilities
|
410,900 | 415,402 | ||||||
|
Members' Equity
|
119,464 | 157,669 | ||||||
|
Total Liabilities and Members' Equity
|
$ | 530,364 | $ | 573,071 | ||||
See accompanying notes to the unaudited financial statements.
Ananda Investments, LLC
(A Texas Limited Liability Company)
|
Statements of Operations and Members' Equity
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||
|
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2014
|
2013
|
2014
|
2013
|
|||||||||||||
|
Revenues:
|
$ | 11,700 | $ | 6,653 | $ | 24,900 | $ | 56,135 | ||||||||
|
Commissions
|
(3,900 | ) | - | (3,900 | ) | - | ||||||||||
|
Net Revenues
|
7,800 | 6,653 | 21,000 | 56,135 | ||||||||||||
|
Costs and Expenses:
|
||||||||||||||||
|
Depreciation and amortization
|
6,613 | 6,614 | 19,841 | 23,267 | ||||||||||||
|
Property taxes
|
2,662 | 2,348 | 8,136 | 7,044 | ||||||||||||
|
Insurance
|
1,926 | 1,867 | 5,738 | 5,566 | ||||||||||||
|
Repairs and maintenance
|
1,822 | - | 7,262 | 1,584 | ||||||||||||
|
Utilities
|
360 | - | 889 | - | ||||||||||||
|
General and administrative
|
527 | 629 | 911 | 629 | ||||||||||||
|
Total Costs and Expenses
|
13,910 | 11,458 | 42,777 | 38,090 | ||||||||||||
|
Net (Loss) Income from Operations
|
(6,110 | ) | (4,805 | ) | (21,777 | ) | 18,045 | |||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Interest income
|
23 | 38 | 83 | 108 | ||||||||||||
|
Interest expense
|
(5,478 | ) | (5,691 | ) | (16,511 | ) | (18,616 | ) | ||||||||
|
Net (Loss) Income
|
(11,565 | ) | (10,458 | ) | (38,205 | ) | (463 | ) | ||||||||
|
Members' Equity, Beginning of Period
|
131,029 | 177,300 | 157,669 | 167,305 | ||||||||||||
|
Members' Equity, End of Period
|
$ | 119,464 | $ | 166,842 | $ | 119,464 | $ | 166,842 | ||||||||
See accompanying notes to the unaudited financial statements.
Ananda Investments, LLC
(A Texas Limited Liability Company)
|
Statements of Cash Flows
|
||||||||
|
Unaudited
|
||||||||
|
For the Nine Months Ended
|
||||||||
|
September 30,
|
||||||||
|
2014
|
2013
|
|||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net (loss) income
|
$ | (38,205 | ) | $ | (463 | ) | ||
|
Adjustments to reconcile net (loss) income to cash (used)
|
||||||||
|
provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
19,841 | 23,267 | ||||||
|
(Increase) in prepaid insurance
|
(1,705 | ) | (1,900 | ) | ||||
|
(Decrease) in accrued expenses
|
(2,713 | ) | (2,469 | ) | ||||
|
Increase in deferred income
|
5,700 | - | ||||||
|
Increase in lease deposit
|
6,300 | - | ||||||
|
Net Cash (Used) Provided by Operating Activities
|
(10,782 | ) | 18,435 | |||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Payments on long-term debt
|
(13,789 | ) | (16,542 | ) | ||||
|
Net Cash (Used) by Financing Activities
|
(13,789 | ) | (16,542 | ) | ||||
|
Net (Decrease) Increase in Cash
|
(24,571 | ) | 1,893 | |||||
|
Cash, Beginning of Period
|
96,009 | 95,515 | ||||||
|
Cash, End of Period
|
$ | 71,438 | $ | 97,408 | ||||
|
Interest Paid
|
$ | 16,511 | $ | 18,616 | ||||
|
Income Taxes Paid
|
$ | - | $ | - | ||||
See accompanying notes to the unaudited financial statements.
Ananda Investments, LLC
(A Texas Limited Liability Company)
Notes to Unaudited Financial Statements
For the Nine Months Ended September 30, 2014
NOTE 1. ORGANIZATION AND BACKGROUND
Ananda Investments, LLC (“the Company”) was organized in Texas on March 26, 2004 for the purpose of investing in real estate. The Company owns and operates a building located in Houston, Texas.
The accompanying unaudited interim financial statements of Ananda Investments, LLC have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2013 and 2012 contained in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the interim financial statements which would substantially duplicate the disclosure contained in the audited financial statements for years ended December 31, 2013 and 2012 as reported in the Company’s Form 10-K have been omitted.
NOTE 2. LONG-TERM DEBT
As of September 30, 2014 long-term debt consists of an installment note payable to a bank, bearing interest at 5.49% per annum, secured by a first lien deed of trust on the land and building located in Houston, Texas and assignment of rents and leases related thereto. The note is payable in monthly installments of $3,367 and matures during June 2028.
|
On September 30, 2014, long-term debt is as follows:
|
||||
|
Note payable
|
$ | 387,464 | ||
|
Less current portion
|
(19,877 | ) | ||
|
Long-term debt
|
$ | 367,587 | ||
|
Maturities of long-term debt are as follows:
|
||||
|
2015
|
$ | 19,877 | ||
|
2016
|
20,738 | |||
|
2017
|
21,905 | |||
|
2018
|
23,138 | |||
|
2019
|
24,441 | |||
|
Thereafter
|
277,365 | |||
| $ | 387,464 | |||
Total interest for the nine months ended September 30, 2014 and 2013 was $16,511 and $18,616, respectively.
Item 2. Management’s Discussion and Analysis.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission filings. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report.
General
REO Plus, Inc. (the "Company") was incorporated on August 10, 2009 under the laws of the State of Texas. The address of the Company is 3014 McCulloch Circle, Houston, Texas 77056, and its telephone number is 713/599-1910.
The Company was formed by a Delaware corporation then known as “Akashic Ventures, Inc.” but now known as “Humanity Biotech, Inc.” (“Akashic”), for purposes of acquiring financially attractive real estate properties. Akashic is a publicly held corporation that once filed reports with the Commission. Akashic has been dormant from a business perspective since about the summer of 1997. Richard J. Church acquired control of Akashic on May 18, 2008. He is now the sole director and officer of Akashic. Mr. Church is the sole promoter of the Company, and he is serving and expects to continue to serve for the foreseeable future as the Company's sole director, and the Company’s President, Treasurer and Secretary.
When the Company was formed in August 2009, Akashic contributed $27,500 to the Company’s capital, and in consideration thereof the Company issued to Akashic 934,500 shares of Company common stock, thereby making Akashic the Company’s initial shareholder. Until early 2010, Mr. Church was a 40% owner of Ananda Investments, LLC (“Ananda”), a Texas limited liability company that owns a particular real estate property near and west of downtown Houston, Texas. This 40% ownership is comprised of 400 units of limited liability company member interest. In early 2010, Mr. Church transferred his 40% ownership in Ananda to the Company. The Company issued to Mr. Church some of its shares of common stock as part of the purchase price for the Ananda interest. As a result of the Ananda transfer, the Company became the largest owner of Ananda by a wide margin. Because Ananda is member-managed, the Company exerts the greatest control over Ananda.
During the third quarter of 2013, the Company began providing real estate and business consulting services as a means to generate revenue. Currently, such services are provided solely by Mr. Church solely to one client, his family’s company, Southwestern Manufacturing Co., Inc. (“SWC”), founded in 1954 in which Mr. Church owns approximately 14% of the outstanding equity interests and acts as a director. SWC is currently conducting a major renovation of its Houston property located on the Southwest Freeway (I-69) at Chimney Rock. The ultimate scope of the Company’s consulting services cannot now be determined, but any consulting performed by Mr. Church as a representative of the Company would be within the limitations set forth by the Real Estate License Act 1101.002.
The Company became a publicly held corporation in November 2012 when Akashic distributed to certain of its shareholders a total of 930,493 shares of Company common stock held by it.
Plan of Operation
The Company generally expects to seek well-located properties in need of capital infusion, or total redevelopment, as properties requiring more extensive real estate skills and effort allow for the greatest appreciation on invested capital. The properties and assets to be acquired by the Company will most likely include commercial, retail, residential and mixed-use properties. Such properties and assets will less likely include office properties, and will almost certainly not include industrial properties. Thus far, the Company has acquired only an interest in one property. For a description of this sole property interest, see the section captioned “Item 2. Properties” in the Company’s 2013 Annual Report on Form 10-K filed on March 31, 2014 with the U.S. Securities and Exchange Commission.
The Company will not limit itself geographically, except that the Company is targeting initial acquisitions located in the Houston, Texas area and eventually other parts of Texas. However, as opportunities present themselves, the Company may focus its efforts on secondary and tertiary geographic markets throughout the United States, particularly in areas that have had significant declines in property values and thus possibly offer opportunities for significant appreciation. The Company believes that distressed markets offer opportunities for the Company to acquire under-performing properties that it believes it has the capability of turning around and repositioning, thereby increasing cash flow, profitability and asset value. The Company believes it can successfully identify such potential target acquisitions based upon the depth and the breadth of the industry experience, contacts and industry knowledge of the Company’s current management. While since its inception the Company has identified certain acquisitions that it would have like to have completed, the Company’s lack of funds has precluded the completion of such acquisitions. The Company believes that its fairly new status as a public SEC reporting company will ease the Company’s ability to raise funds, and make the completion of acquisitions to be identified in the future more likely. The Company is also considering other real estate properties whose values could be enhanced if held in a public entity. However, the Company has no assurances that any financing, acquisitions or merger will occur. Richard J. Church, the Company’s current sole executive officer and director, has the responsibility for identifying acquisitions or selecting acquisitions identified by other sources. Mr. Church has extensive experience in the real estate industry through his various real estate enterprises.
The Company is now receiving target acquisitions from a number of brokers and other real estate professionals and dealmakers with whom the Company’s current management has business relationships. Moreover, potential acquisitions may be brought to the Company’s attention by sources as a result of being solicited by the Company through calls or mailings. In no event will any of the Company’s existing or future officers, directors or shareholders or any entity with which they are affiliated be paid any finder’s fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of an acquisition.
The Company does not have any specific property acquisition under consideration for which written offers have been made. The Company has been approached by entities offering their properties for sale and other entities contemplating the merger of the Company with their non-public corporation, but these discussions have not evolved to the point where the Company has entered into any agreements in principle, much less any definitive agreements. The Company will continue to identify and evaluate prospective property acquisition, performing business due diligence on prospective property acquisitions, traveling to and from the property and asset locations that represent prospective acquisitions, reviewing corporate, title, environmental, and financial documents and material agreements regarding prospective property acquisitions, selecting properties to acquire and striving to structure, negotiate and consummate acquisitions. The Company will have certain burdens and costs with respect to these activities and certain additional risks associated with the subsequent integration of additional assets or properties into the Company’s operations.
The Company does not presently intend to invest in real estate mortgages, securities of or interests in persons primarily engaged in real estate activities (other than the Company’s current interest in Ananda), or investments in other securities such as bonds, preferred stocks or common stocks. However, the Company's Board of Directors may elect to make these investments in the future without a vote of shareholders.
For a description of the Company’s acquisition criterion and policies, see the sections captioned “Item 1. Business - Acquisition Selection” and “Item 1. Business - Policies with Respect to Certain Activities” in pre-effective Amendment No. 8 the Company’s 2013 Annual Report on Form 10-K filed on March 31, 2014 with the U.S. Securities and Exchange Commission.
Results of Operations - General
The Company was incorporated on August 10, 2009 for purposes of acquiring financially attractive real estate properties. The Company made its first and heretofore only property acquisition in early January 2010. This acquisition consisted of a 40% ownership interest in Ananda Investments, LLC (“Ananda”), a Texas limited liability company that owns a particular real estate property near and west of downtown Houston, Texas. Because it has owned only this single asset since 2010, the Company has limited financial results to report.
The Jumpstart Our Business Startups Act, or the JOBS Act, was signed into law on April 5, 2012. As permitted under Section 102(b)(1) of this Act, the Company has elected to use the extended transition period for complying with new or revised accounting standards. This election allows the Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, the Company's financial statements may not be comparable to those of companies that comply with public company effective dates.
Results of Operations – REO Plus, Inc.
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Revenues. During the third quarter of 2014, the Company had revenues in the amount of $11,583 from fee income compared to $9,773 from fee income during the third quarter of 2013.
Expenses. During the third quarter of 2014, the Company had expenses in the amount of $14,892, all from professional fees. These expenses represent an increase of $4,479 from expenses in the amount of $10,413 (nearly all from professional fees) during the third quarter of 2013.
Net Loss from Operations. As a result of the increase in expenses (offset to some extent by an increase in revenues) during the third quarter of 2014, the Company’s net loss from operations increased to $3,309 during the third quarter of 2014 compared to a net loss from operations of $640 during the third quarter of 2013.
Other Income (Expense). During the third quarter of 2014, the Company had equity in loss of its unconsolidated affiliate, Ananda Investments, LLC (“Ananda”), in the amount of $4,626. This equity in loss of unconsolidated affiliate represents a slight increase from the equity in loss of its unconsolidated affiliate in the amount of $4,183 during the third quarter of 2013. During the third quarter of 2014, the Company had interest expense in the amount of $7,118. Most of this interest was due to Richard J. Church, our sole director and officer, for working capital loans and the loan to purchase the ownership interest in Ananda. The Company had interest expense in the amount of $6,754 during the third quarter of 2013.
Net loss. In view of the increase in net loss from operation and the increase in the equity in loss of unconsolidated affiliate and interest expense, the Company had a net loss in the amount of $15,053 during the third quarter of 2014, or a per-share loss of $0.01, compared to net loss in the amount of $11,577 during the third quarter of 2013, or a per-share loss of $0.01.
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Revenues. During the first nine months of 2014, the Company had revenues in the amount of $ 23,549 from fee income resulting from consulting services. The Company had revenues in the amount of $9,773 from fee income resulting from consulting services during the first nine months of 2013, as the Company commenced providing such services only during the third quarter of 2013.
Expenses. During the first nine months of 2014, the Company had expenses in the amount of $53,978, all from professional fees. These expenses represent a decrease of $6,005 from expenses in the amount of $59,983 (nearly all from professional fees) during the first nine months of 2013.
Net Loss from Operations. As a result of the increase in revenues and decrease in expenses during the first nine months of 2014, the Company’s net loss from operations decreased to $30,429 during the first nine months of 2014 compared to $50,210 during the third quarter of 2013.
Other Income (Expense). During the first nine months of 2014, the Company had equity in loss of unconsolidated affiliate in the amount of $15,282. This equity in loss of unconsolidated affiliate represents an increase of $15,097 from equity in income of unconsolidated affiliate in the amount of $185 during the first nine months of 2013. This decrease resulted from the loss of Ananda’s primary tenant during the third quarter of 2013. During the first nine months of 2014, the Company had interest expense in the amount of $20,878. Most of this interest was due to Richard J. Church, our sole director and officer, for working capital loans and the loan to purchase the ownership interest in Ananda. The Company had interest expense in the amount of $19,126 during the first nine months of 2013.
Net loss. In view of the increase in revenues from fee income and lower expenses (offset to a large extent by an increase in equity in loss of unconsolidated affiliate), the Company had a net loss in the amount of $66,589 during the first nine months of 2014, or a per-share loss of $0.04, compared to net loss in the amount of $69,521 during the first nine months of 2013, or a per-share loss of $0.04.
Results of Operations – Ananda Investments, LLC
Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Revenues. During the third quarter of 2014, Ananda had revenues in the amount of $11,700. These revenues represent an increase of $5,047 from revenues in the amount of $6,653 during the third quarter of 2013. This increase resulted from the Ananda’s procurement of a primary tenant during the third quarter of 2014.
Expenses. During the third quarter of 2014, Ananda had expenses in the amount of $17,810, which represents an increase of $6,352 from expenses in the amount of $11,458 during the third quarter of 2013, as Ananda had expenses relating to repairs and maintenance, and leasing commissions during the third quarter of 2014 that it did not have during the third quarter of 2013.
Net Loss from Operations. In view of the increase in expense offset to some extent by an increase in revenues, Ananda had a net loss from operations in the amount of $6,110 during the third quarter of 2014 compared to net loss from operations in the amount of $4,805 during the third quarter of 2013.
Other Income (Expense). During the third quarter of 2014, Ananda had interest expense in the amount of $5,478, which represents a small decrease from interest expense in the amount of $5,691 during the third quarter of 2013. During the third quarter of 2014, Ananda had interest income in the amount of $23 compared to interest income in the amount of $38 during the third quarter of 2013.
Net Income. In view of the increase in expense offset to some extent by an increase in revenues, Ananda had a net loss in the amount of $11,565 during the third quarter of 2014 compared to a net loss in the amount of $10,458 during the third quarter of 2013.
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Revenues. During the first nine months of 2014, Ananda had revenues in the amount of $24,900. These revenues represent a decrease of $31,235 from revenues in the amount of $56,135 during the first nine months of 2013. This decrease resulted from the loss of Ananda’s primary tenant during the third quarter of 2013.
Expenses. During the first nine months of 2014, Ananda had expenses in the amount of $46,677, which represents an increase of $8,587 from expenses in the amount of $38,090 during the first nine months of 2013. Generally, the Company experienced slight increases in nearly all of its expense categories during the first nine months of 2014 compared to the same period in 2013, except that it had a significantly larger expense for repairs and maintenance during the third quarter of 2014 compared to the third quarter of 2013, and it had leasing commissions during the third quarter of 2014 that it did not have during the third quarter of 2013. Depreciation and amortization declined appreciably during the third quarter of 2014 compared to the third quarter of 2013.
Net Income from Operations. In view of the significant decrease in revenues and a significant increase in expenses, Ananda had a net loss from operations in the amount of $21,777 during the first nine months of 2014 compared to net income from operations in the amount of $18,045 during the first nine months of 2013.
Other Income (Expense). During the first nine months of 2014, Ananda had interest expense in the amount of $16,511, which represents a decrease in the amount of $2,105 from interest expense in the amount of $18,616 during the first nine months of 2013. During the first nine months of 2014, Ananda had interest income in the amount of $83, while it had interest income in the amount of $108 during the first nine months of 2013.
Net Income. In view of the significant decrease in revenues and a significant increase in expenses, Ananda had a net loss in the amount of $38,205 during the first nine months of 2014 compared to a net loss in the amount of $463 during the first nine months of 2013.
Liquidity and Capital Requirements
The Company began its pursuit of real estate acquisitions in 2010. Currently, the Company has only one real estate interest. The Company cannot assure anyone that it will be able to acquire any additional real estate properties due to the Company’s limited financial resources at the present. The Company expects to finance any future acquisition with a combination of a cash down payment (probably 10% to 25% or more of the purchase price) and seller or third party financing (for the remaining approximately 75% to 90% of the purchase price), although the Company may in limited circumstances be able to satisfy a portion of the purchase price for a property with the Company’s equity securities. The Company will need to procure cash to fund future down payments from a future private equity offering. Moreover, the Company expects that its largest shareholder may be required to guarantee personally the Company’s seller or third party financing.
The Company is currently trying to determine the scope of the acquisitions that it wishes to pursue. The amount of capital that the Company will need will depend on the scope of the acquisitions that the Company ultimately decides to pursue, which is uncertain at this time. However, for the Company to acquire any additional real estate properties, the Company would be required to undertake certain financing activities. The sources for financing would most likely be private equity sources, such as institutional investors or wealthy individuals. The Company currently does not have any binding commitments for, or readily available sources of, additional financing. The Company cannot assure anyone that additional financing will be available to it when needed or, if available, that such financing can be obtained on commercially reasonably terms. If the Company does not obtain additional financing, it will not be able to acquire any additional real estate properties, and perhaps will not even be able to stay in business for that matter. If the Company does not obtain necessary additional financing, it may be constrained to attempt to sell the sole interest that it has heretofore acquired or additional interests that it may hereafter acquire. However, the Company cannot assure anyone that it will be able to find interested buyers or that the funds received from any such sale would be adequate to fund the Company’s activities. Under certain circumstances, the Company could be forced to cease its operations and liquidate its remaining assets, if any. The Company cannot assure anyone that it will be successful in obtaining necessary capital and in its acquisition activities, although the Company believes that the procurement of additional financing and the completion of additional acquisitions will be easier in view of its fairly new status as a public SEC reporting company.
The Company has incurred losses since inception. These losses have been financed by loans to the Company by Richard J. Church, the controlling stockholder of the Company, and an entity controlled by him. The aggregate amount of the loans by Mr. Church to the Company now totals $300,960. Of this amount, $170,960 was borrowed through fiscal 2012, $90,000 during fiscal 2013, and $40,000 during fiscal 2014 through November 11, 2014. Further information about this outstanding amount can be found in “Item 13. Certain Relationships and Related Transactions, and Director Independence – Related Transactions” in the Company’s 2013 Annual Report on Form 10-K filed on March 31, 2014 with the U.S. Securities and Exchange Commission. Mr. Church has indicated that he intends to continue to loan funds to the Company for expenses in excess of revenues for the next 12 months, but he is under no legal obligation to do so.
Accordingly, he could stop making such loans at any time, and the Company would be constrained to find alternative sources of funds. The Company has no assurance that it will be able to find such alternative sources. Moreover, if Mr. Church decides to stop financing the Company’s expenses, he may also decide to sell all or some portion of his stock in the Company to one or more persons who may elect to discontinue the Company’s historical business and change the Company’s business focus.
Known Trends
Because of the steady improvement in domestic real estate markets across the board and specifically in Houston and the growth of the oil and gas business in Texas, discerning definite trends through 2014 seems reasonable. Property values and property taxes are increasing in targeted markets, and the continuation of this trend seems likely, at least through 2014. Rents and occupancy have been increasing slightly in targeted markets, but they could begin to decline if the domestic economy softens. Management believes that most industry participants have assumed a definitely more aggressive approach in land, property acquisition and development. The Company is evaluating opportunities on a property-by-property basis while anticipating perceived trends to continue at least through 2014, and it expects the business to support development to remain steady through 2016, although there can no assurances that the business climate will remain attractive during this period. Another positive factor in today's market is the continued historical lower interest rates that may be fixed for a number of years (as the loan received by Ananda for a fifteen (15) year amortization) and that significantly reduce the expense of capital, and acquisition/refinancing loans are less difficult to obtain in today's market as there are more lenders with firming financial positions and loosened requirements for real estate than were available less than two (2) years ago.
Seasonal Effects and Effects of Inflation
Management believes that the real estate interest that it currently owns is not, and the ones that it will seek to acquire in the future will not be, subject to seasonal variations. Management further believes that inflation will not affect the Company for the foreseeable future since the Company's financing is fixed through September 2014, although inflation may have greater effects in future years with increased interest rates, and in ways that cannot now be determined.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and Rule 15d-15(e) as of the end of the period covered by this quarterly report. Based on that evaluation, the principal executive officer and principal financial officer have identified that the lack of segregation of accounting duties as a result of limited personnel resources is a material weakness of its financial procedures. Other than for this exception, the principal executive officer and principal financial officer believe the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation and there were no corrective actions with regard to significant deficiencies and material weaknesses.
Limitations on Effectiveness of Controls and Procedures
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls over Financial Reporting
There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the period of this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits.
(a) The following exhibits are filed with this Quarterly Report or are incorporated herein by reference:
|
Exhibit
Number
|
Description
|
|
31.01
|
Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
|
|
31.02
|
Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
|
|
32.01
|
Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.02
|
Certification Pursuant to 18 U.S.C. Section 1350, as pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS*
|
XBRL Instance Document
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB*
|
XBRL Taxonomy Extension Labels Linkbase
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase
|
In accordance with the requirements of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
REO PLUS, INC.
|
|||
|
(Registrant)
|
|||
|
By:
|
/s/ Richard J. Church
|
||
|
Richard J. Church,
|
|||
|
President and Treasurer (Principal
Executive Officer, Principal Financial Officer and Principal Accounting Officer)
|
|||
November 12, 2014