The Osage Limited Liability Company reported a $5.8 million loss in 2012, making it the largest sum lost in a calendar year since the entity’s 2008 launch.
The $5.8 million is more than double the amount the LLC lost in 2011, which is $2.4 million. The LLC has yet to report a profit with losses posted each year thus far. The $5.8 million added onto the $5.7 million lost in the LLC’s first four years totals $11.5 million in losses as of April.
LLC officials say the 2012 losses came from expected business operation losses plus unexpected circumstances such as awarded government contract funds frozen due to federal budget constraints after the LLC acquired Echota Technologies Corp. in 2011. Echota is the first company acquired by the LLC where it has 100 percent ownership.
The losses are a blow to the LLC as it targets the government-contracting arena to seek work for its 8(a)-certified entities. Created by a U.S. Congressional Act, the Small Business Administration issues 8(a) certifications to businesses seeking work contracts with the government. The 8(a) status is intended to give disadvantaged and minority-owned business entities an opportunity to compete for government contracting jobs.
According to LLC CEO Carol Leese, the LLC was notified about three months after its purchase of Echota that funding for 16 of the company’s 24 government contracts was frozen. Those contracts were with the federal Department of Defense.
The contract freeze left the LLC no choice but to reorganize Echota, which included terminating the company president and CEO based with the company in Tennessee.
“This was unexpected, this was gut-wrenching, it was a very hard time in the life of the LLC,” Leese said. “We had to reorganize the company – that took a little bit of engineering because these government contracts have specific capabilities that have to be involved in these different contracts, top secret clearance is one of those.”
The LLC board and Leese addressed the losses during its April 11 annual report to the ON Congressional Commerce and Economic Development Committee. Other 2012 losses included the cost of doing business such as travel and office expenses, Leese said.
Leese said the LLC completed a “due diligence” research on Echota like it did with its other subsidiaries and passive investment opportunities. He said more scrutiny should have focused on the company’s contracting component.
“We should’ve had a due diligence process just with contracts and try to forecast the Department of Defense and we didn’t do that,” Leese said later adding, “I was disappointed in the 2012 losses, but the government is dried up with funding.”
Echota’s value dropped with the frozen contracts because the company’s workload decreased and was factored into 2012’s losses, said Bob Petre, the LLC’s chief financial officer. “We believed we had a good forecast at the time of (Echota’s) purchase,” he said. Echota was acquired for $3 million in October 2011, but its current value was not disclosed by Leese.
Congressman William “Kugee” Supernaw asked why the LLC did not see the losses coming when Echota was purchased. “We didn’t do enough due diligence, that was a lesson learned … Those contracts, we didn’t know were gone … We wouldn’t have bought the company at that point if they weren’t active,” Leese said.
Supernaw, a critic of the LLC since it started reporting losses, said: “I’m hoping that this Congress has learned some lessons … If there’s one lesson that this Congress should learn is you just can’t solve every problem by throwing money at it.”
Despite being grilled about the losses, Leese said 2013 is “our turnaround year” for the LLC, with revenue to significantly increase by year’s end. “As we get more mature, forecasting will be better because we’ll have more contracts from year to year,” he said.
Native Peoples magazine featured Leese and the LLC in its March/April edition where Leese gave an overview description of the LLC. The article reported the LLC forecasted a gross revenue of about $60 million. Leese said the LLC will make this year’s revenue largely from its Osage Manhattan Builders construction contract work on the Osage Casino projects for the new Ponca City and Skiatook hotel/casinos.
LLC Board member Jim Parris said a new performance measuring system is being implemented to monitor the LLC’s monthly progress to see if the subsidiaries meet their goals and margins.
Also during the April 11 meeting, board member Paul Bruce said he is not seeking another term with his term expiring with the Hun-Kah Session, citing family and health issues needing his attention.
Congresswoman Shannon Edwards commended Bruce for taking on the LLC board work since its launch, with Congress members Raymond Red Corn and John Maker also expressing gratitude before the meeting moved into executive session to discuss LLC proprietary matters. With Bruce’s departure there is one vacancy on the five-member board.