BOSTON OMAHA Corp - Annual Report: 2015 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(MARK ONE)

☒           ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE

               SECURITIES EXCHANGE ACT OF 1934

☐           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

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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.

(Do not check if smaller reporting company)

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Item 1.  Business.

Boston Omaha Corporation was originally incorporated as REO Plus, Inc. on August 10, 2009 under the laws of the State of Texas.  On March 18, 2015, we reincorporated as a Delaware corporation and changed our name to Boston Omaha Corporation.   Our principal address is 292 Newbury Street, Suite 333, Boston, Massachusetts  02115 and our telephone number is 857-256-0079.

 

We were formed by a Delaware corporation then known as "Akashic Ventures, Inc." for purposes of acquiring financially attractive real estate properties.   Richard J. Church acquired control of Akashic on May 18, 2008.  Until early 2010, Richard Church was a 40% owner of Ananda Investments, LLC ("Ananda"), a Texas member-managed limited liability company that owns a particular real estate property near and west of downtown Houston, Texas.  In early 2010, Mr. Church transferred his 40% ownership in Ananda to us.  In exchange, we issued to Mr. Church shares of our common stock as part of the purchase price for the Ananda interest.  As a result of the Ananda transfer, we became the largest owner of Ananda by a significant margin.  

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As part of the overall transaction, we transferred to Holding all of our equity interests in Ananda Investments, LLC.  Holding pledged to Mr. Church our interest in Ananda Investments as security for repayment of the sums due under the Holding Note.  Under the terms of the Holding Note, Holding could transfer our entire interest in Ananda Investments to Mr. Church in exchange for the Holding Note and Mr. Church could exchange the Holding Note for our entire interest in Ananda Investments.  In December 2015, Mr. Church received the interest in Ananda Investments in exchange for cancellation of the Holding Note.
 

On February 19, 2015, Mr. Church appointed Alex B. Rozek, a principal of Boulderado Group, LLC, as our sole Director and President.   On March 18, 2015, Mr. Rozek elected Adam K. Peterson, a principal of Magnolia Capital Fund, L.P. as an additional Director and as our Executive Vice President. Mr. Rozek and Mr. Peterson serve as Co-Chief Executive Officers and Co-Chairmen of the Board of the Company.  Mr. Brendan J. Keating was subsequently elected to our Board of Directors in February 2016.
 

On March 18, 2015, we converted from a Texas corporation to a Delaware corporation.  This action was taken by means of an action by consent of stockholders owning approximately 95% of our issued and outstanding common stock.  Notice of the conversion, and of the rights of existing stockholders to certain appraisal rights, were mailed by our transfer agent to all stockholders of record of our common stock as required by the laws of the State of Texas.  No stockholder sought to exercise any appraisal rights.  As part of the reincorporation, our name was changed to "Boston Omaha Corporation."   Our Certificate of Incorporation reduced the number of authorized shares of common stock from 500,000,000 to 30,000,000 shares and reduced the number of "blank check" preferred shares available for future designation from 10,000,000 to 3,000,000 shares.  As part of our conversion to a Delaware corporation, we also adopted new bylaws.
 

On June 17, 2015, we amended and restated our Certificate of Incorporation.  This action was taken by means of an action by consent of stockholders owning approximately 95% of our issued and outstanding common stock.  As part of the Amended and Restated Certificate of Incorporation, we:

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On September 11, 2015, we formed General Indemnity Group, LLC, a wholly owned subsidiary, which we intend to use to acquire and underwrite potential future insurance operations.
 

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On February 16, 2016, Link Media Wisconsin, LLC, which is owned by Link Holdings, LLC, our subsidiary, entered into an asset purchase agreement with Jag, Inc. and the sole voting shareholder of Jag, Inc., by which Link Media Wisconsin, LLC acquired billboards with 422 faces, 50 directional signs and other related assets from Jag, Inc.  The billboards, directional signs and related assets are located in Wisconsin.  The purchase price for the acquired assets was $6,954,246, of which $687,500 was placed in escrow and the remainder was paid at closing. The purchase price is subject to certain post-closing working capital adjustments.  We also purchased a digital display structure with two faces located in Florida from Rose City Outdoor, LLC. The purchase price for these assets was $287,320.

On March 11, 2016, we amended our Amended and Restated Certificate of Incorporation to reduce the authorized number of shares of our common stock from 18,000,000 to 11,000,000 shares, designated 1,161,116 shares of our common stock as Class A common stock and decreased our authorized shares of preferred stock from 3,000,000 to 1,000,000 shares.

 We 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.  We have not yet registered as a reporting company under the Securities Exchange Act of 1934, as amended, but intend to do so in the near future.

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Since present management took over in February 2015, the Company has been recapitalized with $44,500,000 of additional capital provided by Boulderado and Magnolia, including approximately $20,500,000 in the current ongoing 2016 Financing in which the Company seeks to raise up to $50,000,000, and has also converted debt principal and accrued interest in the amount of $505,154 held by Boulderado and Magnolia into Class A common stock and warrants.  In addition, we have sold to date an additional $4,516,773 of common stock to ten additional  investors in the 2016 Financing.  We have used a portion of these proceeds from these financings to acquire outdoor billboard assets in Alabama, Florida, Georgia and Wisconsin. At the end of February 2016, we had $29,296,891 available in unrestricted cash.   We expect to continue to seek additional acquisitions in billboard advertising.  We believe the billboard business offers the potential to provide a durable and growing cash flow stream over time.  In addition, we believe multiple opportunities could exist in time for the industry at large including but not limited to: supply limitations, demand growth, opportunity to convert static billboard faces to digital applications when the economics are favorable, and a growing use of billboard advertising by customers who previously ignored or underutilized the medium due to the general inflexibility of static board contracts.  We have also used the proceeds of these financings to organize General Indemnity Group, LLC a wholly-owned subsidiary, which we intend to use to acquire and underwrite potential future insurance operations.  Finally, we spent $377,732 to acquire  a minority interest in a residential real estate development group in Colorado, $195,000 to acquire a 30% stake in a commercial real estate brokerage, and property management company based in Nevada, $97,500 to acquire a minority stake in a business in  retail centers in Nevada, and $ 159,167 to acquire a minority stake in another real estate development company.

 

We source acquisitions both internally via phone calls, research or mailings and also by receipt of target acquisition opportunities from a number of brokers and other professionals.    In addition to acquiring outdoor billboards, we are also seeking opportunities to acquire other businesses or a significant interest in existing businesses.  We look to acquire businesses in their entirety that have consistently demonstrated earnings power over time, with attractive pretax historical returns on tangible equity capital, while utilizing minimal to no debt, and that are available at a reasonable price.  However, we may consider minority positions and stock issuance when the economics are favorable.  In certain circumstances, we may enter lines of business directly when the opportunities and economics of doing so are favorable in comparison to acquisitions.

  

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 Our local production staffs provide to many of our customers  a range of services required to create and install advertising copy.  Production work includes creating the advertising copy design and layout, coordinating its printing with outside printing firms and installing the copy on the billboard face.  We provide creative services to smaller advertisers and to advertisers not represented by advertising agencies.  National advertisers often use preprinted designs that require only installation.  Our creative and production personnel typically develop new designs or adapt copy from other media for use on our inventory.  Our creative staff also can assist in the development of marketing presentations, demonstrations and strategies to attract new clients.

 

We typically own the physical structures on which our clients' advertising copy is displayed.  We acquire new structures from third parties and erect them on sites we either lease or own or for which we have acquired permanent easements.  The site lease terms generally range from one to 20 years and often come with renewal options, or exist in areas where we believe that regulations make it probable a new lease will be signed prior to expiration on similar economic terms to existing leases.  In addition to the site lease, we must obtain a permit to build the sign.  Permits are typically issued in perpetuity by the state or local government and typically are transferable or renewable for a minimal, or no, fee.  Traditional bulletin and poster advertising copy is either printed with computer generated graphics on a single sheet of vinyl or placed on lithographed or silk-screened paper sheets supplied by the advertiser.  These advertisements are then transported to the site and in the case of vinyl, wrapped around the face of the site, and in the case of paper, pasted and applied like wallpaper to the site.  The operational process also includes conducting visual inspections of the inventory for display defects and taking the necessary corrective action within a reasonable period of time.

 

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We may expand the deployment of digital billboards in markets and in specific locations we deem appropriate and where the placement of these digital displays is permitted by government agencies regulating their locations. We are aware of some existing regulations in the U.S. that restrict or prohibit these types of digital displays.  However, since digital technology for changing static copy has only recently been developed and introduced into the market on a large scale, and is in the process of being introduced more broadly, existing regulations that currently do not apply to digital technology by their terms could be revised to impose greater restrictions. These regulations, or actions by third parties, may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.

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Investment Regulation.    Insurance company investments must comply with applicable laws and regulations which prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments in federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate and certain other investments, subject to specified limits and certain other qualifications.

Acquisition Selection

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Borrowing of money
 

We may use a number of different sources to finance the Company's acquisitions and operations, including cash flows from operations, seller financing, private financings (such as bank credit facilities, which may or may not be secured by our assets), common or preferred equity issuances or any combination of these sources, to the extent available to us, or other sources that may become available from time to time, which could include asset sales and issuance of debt securities. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. We also may take advantage of joint venture or other partnering opportunities as such opportunities arise in order to acquire properties that would otherwise be unavailable to us. We may use the proceeds of any future borrowings to acquire assets or for general corporate purposes. We expect to use leverage conservatively, assessing the appropriateness of new equity or debt capital based on market conditions, including assumptions regarding future cash flow, the creditworthiness of customers and future rental rates.  Our certificate of formation and bylaws do not limit the amount of debt that we may incur. Our Board of Directors has not adopted a policy limiting the total amount of debt that we may incur. Our Board of Directors will consider a number of factors in evaluating the amount of debt that we may incur. If we adopt a debt policy, our Board of Directors may from time to time modify such policy in light of then-current economic conditions, relative costs of debt and equity capital, market values of our properties, general conditions in the market for debt and equity securities, fluctuations in the market price of our common stock if then trading on any exchange, growth and acquisition opportunities and other factors.  Our decision to use leverage in the future to finance our assets will be at our discretion and will not be subject to the approval of our stockholders, and we are not restricted by our governing documents or otherwise in the amount of leverage that we may use.

Purchase and sale (or turnover) of acquired businesses

We do not currently intend to dispose of any of our properties in the near future as our strategy is to acquire assets which have the potential to generate significant cash flow over an extended period of time.  However, we reserve the right to do so if, based upon management's periodic review of our portfolio, our Board of Directors determines that such action would be in our best interest.

 

 

Although we have no current plans to do so, we may in the future issue shares of common stock or units in connection with acquisitions of businesses.  For issuances of shares in connection with acquisitions, our Board of Directors will determine the timing and size of the issuances.  Our Board of Directors intends to use its reasonable business judgment to fulfill its fiduciary obligations to our then existing shareholders in connection with any such issuance. Nonetheless, future issuances of additional shares could cause immediate and substantial dilution to the net tangible book value of shares of our common stock issued and outstanding immediately before such transaction.

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Any future decrease in the net tangible book value of such issued and outstanding shares could materially and adversely affect the market value of the shares.  

We do not intend to mail annual or other reports to security holders except as required by the proxy rules of the U.S. Securities and Exchange Commission (the "Commission").    The annual reports required by these rules will contain financial statements certified by independent public accountants.  

We do not intend to invest in the securities of other issuers for the purpose of exercising control, underwrite securities of other issuers, and repurchase or otherwise reacquire our shares or other securities.  Moreover, we have not engaged in any of the preceding activities since our inception

The Jumpstart Our Business Startups Act, or the JOBS Act, was signed into law on April 5, 2012.  Under this law, we are an "emerging growth company."  This status entails significant advantages, which are discussed below.  To be an "emerging growth company," a company must have:       

 

 

Companies meeting these requirements have the following significant advantages:

 

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They can submit a draft registration statement to the SEC for confidential review, which will not be publicly filed until at least 21 days before the road show for the offering

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They can "test the waters" by communicating with qualified investors to determine whether such investors might have an interest in a contemplated securities offering

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Underwriters of their initial public offering may be able to issue research reports on the stocks ahead of the offerings

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They need not comply with any new or revised financial accounting standards until such date such standards are also applicable to private companies

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For up to five years, they will be exempt from certain disclosures dealing with executive compensation

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They will not be required to have an auditor attest to their internal financial controls over financial reporting

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They are exempt from future rules of the Public Company Accounting Oversight Board (which oversee the audits of public companies) mandating auditor rotation or making modifications to the auditor's report

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 An emerging growth company will lose its status as such on the earliest of the following:

The following is a general discussion of certain of the U.S. federal income tax consequences of holding and disposing of our common stock by U.S. Holders and Non-U.S. Holders (each as defined below). This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, applicable Treasury regulations, administrative interpretations and court decisions all as in effect as of the date hereof, and all of which may change, possibly with retroactive effect. No ruling has been or will be sought from the Internal Revenue Service, or the IRS, as to the matters addressed herein, and the following summary is not binding on the IRS or the courts. As a result, the IRS could adopt a contrary position, and a court could sustain such a contrary position.

For purposes of this discussion, a "U.S. Holder" is a beneficial owner of the Company's common stock that is:

 

 

A "Non-U.S. Holder" is a beneficial owner of our common stock that is not a U.S. Holder.

This discussion does not address all of the tax consequences that may be relevant to specific Holders in light of their particular circumstances or the U.S. federal income tax considerations applicable to Holders subject to special treatment under U.S. federal income tax law, including, for example, brokers or dealers in securities, financial institutions, mutual funds, insurance companies, tax-exempt entities, Holders who hold our common stock as part of a hedge, appreciated financial position, straddle, or other risk reduction strategy, Holders who acquired their common stock other than for cash, Holders which are treated as partnerships or other pass-through entities for U.S. federal income tax purposes or investors in such entities and Holders liable for the alternative minimum tax. Furthermore, this discussion only addresses Holders who purchase our common stock in this distribution and hold such common stock as capital assets within the meaning of Section 1221 of the Code. No information is provided herein with respect to the tax consequences of the holding or disposing of our common stock under applicable state, local or foreign laws or any estate or gift tax consequences. Prospective Holders are urged to consult their own tax advisors regarding the U.S. federal tax consequences of owning and disposing of our common stock, as well as the applicability and effect of any state, local or foreign tax laws.

If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner or member in such entity will generally depend upon the status of the partner or member and the activities of the entity. If you are a partner or member of such an entity that holds our common stock, you should consult your own tax advisor.

 

Distributions

Generally, a distribution by us with respect to our common stock will be treated as a taxable dividend to the extent of our current and accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent that the amount of a distribution exceeds our current and accumulated earnings and profits, the excess will constitute a tax-free return of capital to the extent of a Holder's tax basis in the common stock, and thereafter as gain from the sale or exchange of such common stock, the taxation of which is described under the heading "Sales, Exchanges or Other Taxable Dispositions." Certain Holders (including individuals) may qualify for preferential U.S. federal income tax rates in respect of dividend income. Holders that are corporations may be eligible for a dividend-received deduction in respect of a dividend distribution.

Sales, Exchanges or Other Taxable Dispositions

Upon the sale, exchange or other taxable disposition of our common stock, a Holder generally will recognize gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received upon the sale, exchange or other taxable disposition, and (ii) such Holder's adjusted tax basis in the common stock. Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the Holder's holding period is more than one year at the time of sale or disposition. Certain Holders (including individuals) can qualify for preferential U.S. federal income tax rates in respect of long-term capital gains. The deductibility of capital losses is subject to certain limitations.

Distributions

Dividends paid by us to a Non-U.S. Holder will be subject to U.S. federal withholding tax at a 30% rate, unless (i) an applicable income tax treaty reduces or eliminates such tax, and a Non-U.S. Holder provides us with an IRS Form W-8BEN (or successor form) certifying its entitlement to the benefit of such treaty, or (ii) the dividends are effectively connected with a Non-U.S. Holder's conduct of a trade or business in the United States and the Non-U.S. Holder provides us with an IRS Form W-8ECI (or successor form). In the latter case, a Non-U.S. Holder generally will be subject to U.S. federal income tax with respect to such dividends in the same manner as a U.S. person, unless otherwise provided in an applicable income tax treaty. Additionally, a Non-U.S. Holder that is a corporation may be subject to a branch profits tax on its after-tax effectively connected dividend income at a rate of 30% (or at a reduced rate under an applicable income tax treaty). If a Non-U.S. Holder is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty, such Non-U.S. Holder may obtain a refund of any excess amount withheld by filing an appropriate claim for refund with the IRS.

To the extent that the amount of a distribution exceeds our current and accumulated earnings and profits, the excess will constitute a tax-free return of capital to the extent of a Holder's tax basis in the common stock, and thereafter as gain from the sale or exchange of such common stock, the taxation of which is described under the heading "Sales, Exchanges or Other Taxable Dispositions."

Sales, Exchange or Other Taxable Dispositions

Generally, a Non-U.S. holder will not be subject to U.S. federal income tax on a gain realized upon the sale, exchange or other disposition of our common stock unless (i) such Non-U.S. Holder is an individual present in the United States for 183 days or more in the taxable year of the sale, exchange or other disposition and certain other conditions are met, (ii) the gain is effectively connected with such Non-U.S. Holder's conduct of a trade or business in the United States and, where a tax treaty so provides, the gain is attributable to a U.S. permanent establishment of such Non-U.S. Holder, or (iii) we are or have been a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the Non-U.S. Holder held our common stock and either (a) our common stock has ceased to be traded on an "established securities market" prior to the beginning of the calendar year in which the sale, exchange or other disposition occurs, or (b) the Non-U.S. Holder owns (actually or constructively) more than five percent of our common stock (the "Five Percent Exception").   While not anticipated, it is possible that we could become a "U.S. real property holding corporation", in which case gains from a disposition of our common stock (including from a distribution in excess of our current and accumulated earnings and profits and in excess of a Non-U.S. Holder's tax basis in its common stock) will be subject to tax under the Foreign Investment in Real Property Tax Act, or FIRPTA, unless the Non-U.S. Holder met the Five Percent Exception. If the gain on the disposition of common stock were to be subject to tax under FIRPTA, such Non-U.S. Holder would be required to file a U.S. federal income tax return and would be subject to U.S. federal income tax in the same manner as a U.S person with respect to the gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In that case, withholding tax at a rate of 10.0% of the proceeds of the sale could apply, which withholding tax would be creditable against such Non-U.S. Holder's U.S. federal income tax liability.

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Information returns will be filed with the IRS in connection with dividend payments on our common stock and the proceeds from a sale or other disposition of the common stock. A Holder will be subject to U.S. backup withholding tax on these payments if the Holder fails to provide its taxpayer identification number to the paying agent and to comply with certain certification procedures or otherwise to establish an exemption from backup withholding. The amount of any backup withholding from a payment to a Holder will be allowed as a credit against the Holder's U.S. federal income tax liability and may entitle the Holder to a refund, provided that the required information is timely furnished to the IRS, and other applicable requirements are satisfied.

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If future acquisitions do not achieve sufficient profitability relative to expenses and investment, our business and ability to finance our operations could be materially adversely affected.

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risks relating to the condition of assets acquired and exposure to residual liabilities of prior businesses;

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operating risks, including equipment, technology and supply problems, regulatory requirements and approvals necessary for acquisitions;

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risks that potential acquisitions may require the disproportionate attention of our senior management, which could distract them from the management of our existing businesses;

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risks related to our ability to retain experienced personnel of the acquired company; and

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risks that certain acquisitions may require regulatory approvals, which could be refused or delayed and which could result in unforeseen regulatory expenses or unfavorable regulatory conditions.

These issues could have a material adverse effect on our business and our ability to finance our operations. The businesses and other assets we acquire in the future may not achieve sufficient revenue or profitability to justify our investment, and any difficulties we may encounter in the integration process could interfere with our operations and reduce operating margins. Acquisitions could also result in dilutive issuance of our equity securities, incurrence of debt and contingent liabilities and fluctuations in quarterly results and expenses.

Increased operating expenses associated with any expansion of our business may negatively impact our income as we, among other things:

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expand geographically;

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make significant capital expenditures to support our ability to provide services in our existing businesses; and

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incur increased general and administrative expenses as we grow.

As a result of these factors, we may not achieve, sustain or increase our profitability on an ongoing basis.

We have limited experience in acquiring other companies and businesses, and we may have difficulty integrating the operations of companies or businesses that we may acquire and may incur substantial costs in connection therewith.

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the need to implement or remediate appropriate controls, procedures and policies at companies that, prior to the acquisition, lacked these controls, procedures and policies;

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disruption of ongoing business, diversion of resources and of management time and focus from operating our business to acquisitions and integration challenges;

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our ability to achieve anticipated benefits of acquisitions by successfully marketing the service offerings of acquired businesses to our existing partners and customers, or by successfully marketing our existing service offerings to customers and partners of acquired businesses;

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the negative impact of acquisitions on our results of operations as a result of large one-time charges, substantial debt or liabilities acquired or incurred, amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets, or adverse tax consequences, substantial depreciation or deferred compensation charges;

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the need to ensure that we comply with all regulatory requirements in connection with and following the completion of acquisitions;

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the possibility of acquiring unknown or unanticipated contingencies or liabilities;

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retaining employees and clients and otherwise preserving the value of the assets of the businesses we acquire; and

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the need to integrate each acquired business's accounting, information technology, human resource and other administrative systems to permit effective management.

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We may develop products that insure risks we have not previously insured, contain new coverage or coverage terms or contain different commission terms.

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We may refine our underwriting processes.

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We may seek to expand distribution channels.

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We may focus on geographic markets within or outside of the United States where we have had relatively little or no market share.

 

 

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Demand for new products or in new markets may not meet our expectations.

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To the extent we are able to market new products or expand in new markets, our risk exposures may change, and the data and models we use to manage such exposures may not be as sophisticated or effective as those we use in existing markets or with existing products. This, in turn, could lead to losses in excess of our expectations.

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Models underlying underwriting and pricing decisions may not be effective.

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Efforts to develop new products or markets have the potential to create or increase distribution channel conflict.

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To develop new products or markets, we may need to make substantial capital and operating expenditures, which may also negatively impact results in the near term.

If our efforts to develop new products or expand in targeted markets are not successful, our results of operations could be materially and adversely affected.
 

We may lack operational control over certain companies in which we invest.

We have made, and may continue to make, certain strategic investments in various businesses without acquiring all or a majority ownership stake in those businesses.  To the extent that such investments represent a minority or passive stake in any business, we may have little to no participation, input or control over the management, policies, and operations of such business.  Further, we may lack sufficient ownership of voting securities to impact, without the vote of additional equity holders, any matters submitted to shareholders or members of such business for a vote.

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Disruptions or similar problems could increase our expenses.

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If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell your common stock at an attractive price or at all.  We cannot predict the prices at which our common stock will trade.

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Since our common stock could be thinly traded, its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control.  Such factors include, without limitation, the trading volume of our shares; the number of securities analysts, market-makers and brokers following our common stock; new products or services introduced or announced by us or our competitors; actual or anticipated variations in quarterly operating results; conditions or trends in our business industries; announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; additions or departures of key personnel; sales of our common stock; and general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies.  Investors may have difficulty reselling our common stock, either at or above the price they paid for our stock, or even at fair market value. The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock could be thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, there is a history of securities class action litigation following periods of volatility in the market price of a company's securities. Although there is no such litigation currently pending or threatened against us, such a suit against us could result in the incursion of substantial legal fees, potential liabilities and the diversion of management's attention and resources from our business.

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The market price for the common stock may be significantly affected by factors such as variations in quarterly and yearly operating results, general trends in the industries in which we operate, and changes in state or federal regulations affecting us and our industries.  Furthermore, in recent years the stock markets have experienced extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of the affected companies. Such broad market fluctuations may adversely affect the market price of our stock, if a market for it develops, and the market price of our stock may be similarly volatile and subject to such wide fluctuations.

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Our business, consolidated results of operations and financial condition could be materially affected by conditions in the global capital markets and the economy generally. A wide variety of factors continue to impact economic conditions and consumer confidence. These factors include, among others, concerns over the pace of economic growth in the U.S., continued low interest rates, the U.S. Federal Reserve's plans to further raise short-term interest rates, the strength of the U.S. Dollar, global economic factors including quantitative easing or similar programs by the European Central Bank, the potential breakup of the European Union resulting from the exit by one or more member states, the recent slowdown and resulting economic turmoil in China, volatile energy costs, and domestic and geopolitical issues, as well as government interpretations and actions  changing the regulatory environment and the tax system under which we operate.  Certain of these factors could have an adverse effect on us. Our revenues may decline, our profit margins could erode and we could incur significant losses.

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We may provide public guidance on our expected operating and financial results for future periods. Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties as described elsewhere in this Annual Report on Form 10-K and in our other public filings and public statements. Whether or not we provide guidance, investment analysts may publish their estimates of our future financial performance. Our actual results may not always be in line with or exceed any guidance we have provided or the expectations of investment analysts, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts or if we or investment analysts reduce estimates of our performance for future periods, the market price of our common stock may decline.

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Volatility in the market price of our common stock may prevent investors from being able to sell their common stock at or above the price paid for their shares. As a result, our stockholders may suffer a loss on their investment.

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Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares.

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We are an "emerging growth company," as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (iii) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and of shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive if we elect to take advantage of these exemptions and as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.  In addition, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We may take advantage of the benefits of this extended transition period. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.

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Our common stock is deemed to be "penny stock" as that term is defined in Regulation Section 240.3a51-1 of the SEC. Penny stocks are stocks: (a) with a price of less than $5.00 per share; (b) that are not traded on a "recognized" national exchange; (c) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ - where listed stocks must still meet requirement (a) above); or (d) in issuers with net tangible assets of less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act and Regulation 240.15g(c)2 of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any common stock that are deemed to be "penny stock."  Moreover, Regulation 240.15g-9 of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. Compliance with this procedure may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of them. Holders should be aware that, according to SEC Release No. 34-29093, dated April 17, 1991, the market for penny stocks suffers from patterns of fraud and abuse.

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We will incur increased costs as a result of operating as a public company in the United States.

Our two principal stockholders currently control all voting matters brought before our board of directors and shareholders.

Our board of directors, which currently consists solely of the two directors appointed by the holders of the Company's Class A common stock voting as a separate class and a third director, approves the Company's annual budget, compensation matters, and major agreements. Currently, the two largest shareholders of the Company, Boulderado and Magnolia, collectively own all of our Class A common stock and a majority of our common stock, and will continue to own all of the outstanding Class A common stock and a majority of the outstanding common stock following the completion of the 2016 Financing.  Further, each share of Class A common stock is entitled to cast 10 votes for all matters on which our stockholders vote, while each share of common stock is entitled to cast only one vote.  Including the shares issued in the 2016 Financing to date, and assuming all currently exercisable warrants are exercised, Magnolia and Boulderado collectively own approximately 91.91% of our current outstanding shares of common stock and Class A Common Stock on a combined basis.  As each share of Class A common stock has 10 votes for each share of common stock, Magnolia and Boulderado combined control the voting of 97.26% of all votes held by the holders of Class A common stock and common stock on a combined basis. Therefore, for the foreseeable future, the two majority shareholders will continue to control virtually all matters submitted to shareholders for a vote; may elect all of our directors; and, as a result, may control our management, policies, and operations.  Our other shareholders will not have voting control over the company's actions, including the determination of other industries and markets that we may elect to enter.

Our currently outstanding Class A common stock allows the holders of Class A common stock to elect two Directors who can each veto many important actions requiring approval of our board of directors.

 

*           Amend, alter or otherwise change the rights, preferences or privileges of the Class A common stock, or amend, alter or repeal any provision of our Certificate of Incorporation or Bylaws in a manner that adversely affects the powers, preferences or rights of the Class A common stock.

 

*           Liquidate, dissolve or wind-up our business, effect any merger or consolidation or any other deemed liquidation event or consent to any of the foregoing.

 

*           Create, or authorize the creation of, or issue or issue additional shares of Class A common stock, or increase the authorized number of shares of any additional class or series of capital stock.

 

*           Increase or decrease the authorized number of directors constituting the Board of Directors.

 

*           Hire, terminate, change the compensation of, or amend the employment agreements of, our executive officers.

 

*           Purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of our capital stock.

 

*           Create, or authorize the creation of, or issue, or authorize the issuance of any debt security, if our aggregate indebtedness for borrowed money following such action would exceed $10,000, or guarantee, any indebtedness except for our own trade accounts arising in the ordinary course of business.

 

*           Make, or permit any subsidiary to make, any loan or advance outside of the ordinary course of business to any employee or director.

 

*           Create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by us or permit any direct or indirect subsidiary to sell, lease, otherwise dispose all or substantially all of the assets of any subsidiary.

 

*           Change our principal business, enter new lines of business, or exit the current line of business.

 

*           Enter into any agreement involving the payment, contribution, or assignment by us  or to us of money or assets greater than $10,000.

 

*           Enter into or be a party to any transaction outside of the ordinary course of business with any our directors, officers, or employees or any "associate" (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended) of any such person or entity.

 

*           Acquire, by merger, stock purchase, asset purchase or otherwise, any material assets or securities of any other corporation, partnership or other entity.

 

 

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Our two co-chief executive officers serve as two of our three directors. Our third director is the principal of a real estate brokerage and management company, in which we currently have a 30% ownership interest and a separate real estate entity in which we own a 15% equity interest.  Our directors and executive officers are required to make interested party decisions, such as the approval of related party transactions, their level of compensation, and oversight of our accounting function. Our two largest shareholders also exercise control over all matters requiring stockholder approval, including the nomination of directors and the approval of significant corporate transactions. We have chosen not to implement various corporate governance measures at this time, the absence of which may cause stockholders to have more limited protections against transactions implemented by our board of directors, conflicts of interest and similar matters. Stockholders should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

Delaware law and certain provisions in our certificate of incorporation and bylaws may prevent efforts by our stockholders to change the direction or management of the Company.

*

setting forth specific procedures regarding how our stockholders may nominate directors for election at stockholder meetings;

*

permitting our board of directors to issue preferred stock without stockholder approval; and

*

limiting the rights of stockholders to amend our bylaws.

 

Because we currently have no plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

Our authorized preferred stock exposes holders of our common stock to certain risks.

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Item 1B.    Unresolved Staff Comments

        NONE.

Item 2.    Properties

We do not currently lease any office space other than month-to month shared office space arrangements for certain of our employees. In connection with the acquisition of various billboard sites, we own several of these sites and in other instances lease the sites from third parties.   Land leases related to the structures are typically paid in advance for periods ranging from one to twelve months.  The lease contracts include those with fixed payments and those with escalating payments.  Some of the lease contracts contain a base rent payment plus an additional amount up to a particular percentage of revenue.  Prepaid land leases are recorded as assets and expensed ratably over the related term and rent payments in arrears are recorded as an accrued liability.  The leases are non-cancelable operating leases having remaining terms ranging from month-to-month to 214 months.  Ground rents for the years ended December 31, 2015 and 2014 were $114,587 and $0, respectively.  Contingent rents included in ground rents for the years ended December 31, 2015 and 2014 were $1,733 and $0, respectively.  Future minimum rents for lease arrangements in existence at December 31, 2015 are described in Note 9 to the Notes to Consolidated Financial Statements. In the opinion of our management, our properties are adequate and suitable for our business as presently conducted and are adequately maintained.

Item 3. Legal Proceedings.

 

Item 4. Mine Safety Disclosures.

 

 

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

  No established public market for the trading of shares of our common stock now exists.  Subject to the sponsorship of a market maker, we intend to seek to qualify shares of our common stock to be traded in an over-the-counter market, such as the OTCQX or the OTC Electronic Bulletin Board.  There can be no assurance that our shares of common stock will be accepted for listing or, if accepted, that an active trading market will develop.

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Item 6.  Selected Financial Data.

Item 7  Management's Discussion and Analysis of Financial Condition and Results of Operations.

Our discussion and analysis of our financial condition and results of operations as of December 31, 2015 are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base the estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material. The footnotes to our financial statements contain critical accounting policies that affect our more significant judgments and estimates used in the preparation of our financial statements. These policies should be reviewed to understand our financial condition and results of operations.

 

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During Fiscal 2015, each of  Alex Rozek and Adam Peterson, received compensation at the rate of $24,000 per annum.    Commencing in January 2016, each of Messrs. Rozek and Peterson are entitled to receive a base salary in the amount of $275,000 per year, together with the right to participate in a bonus plan based upon any growth in our book value based on certain operating profit metrics.  However, each of Messrs. Rozek and Peterson has agreed to delay implementation of this compensation increase until at least the third quarter of the current fiscal year.

Other Income (Expense).   During Fiscal 2015, we had equity in income (loss) of our unconsolidated affiliates of $3,813, which consists of the following:

 

Equity in income of Ananda Investments		$	16,518
Equity in loss of Logic Real Estate			(12,674	)
Equity in loss of TAG SW 1			(31	)

This equity in income of unconsolidated affiliate represents a $19,618 increase from the equity in loss of unconsolidated affiliate in the amount of $15,805 during Fiscal 2014 as Ananda's financial performance improved as a result of increased rental income.  During Fiscal 2015, we also recorded a one-time gain on the sale of investment in the amount of $78,150, resulting from the gain recognized on the exchange of the note payable to Richard Church for our interest in Ananda.  During Fiscal 2015, we incurred interest expense in the amount of $22,508, compared to interest expense of $28,132 during Fiscal 2014.  All of this interest expense was due to loans issued to Boulderado and Magnolia (either from loans previously issued by us to Richard Church and subsequently assigned by Mr. Church to Boulderado and Magnolia or from loans issued by Boulderado and Magnolia to us in April 2015 in the aggregate principal amount of $200,000), and a prior loan issued by us to Richard Church.  

Net Loss.  The revenues generated primarily from the billboard businesses acquired in Fiscal 2015 were offset by costs and expenses, including one-time charges for professional fees associated with the acquisitions we completed in 2015 and non-cash amortization and depreciation charges, resulting in a net loss of $1,047,423 for Fiscal 2015, compared to a loss of $66,778 for Fiscal 2014.

Net Loss Per Share.  During Fiscal 2015, we conducted a 1:7 reverse stock split and then issued additional shares in connection with our sale of Class A common stock offering in June 2015 and our subsequent common stock offering in July 2015, resulting in an increase in our basic and diluted weighted average shares outstanding from 266,954 shares at the end of Fiscal 2014 to 1,481,310 shares at the end of Fiscal 2015.  Our basic and diluted net loss per share was $.71 for Fiscal 2015 compared to a net per-share loss of $.25 for Fiscal 2014.

Currently, we operate a billboard business operating in four states, have invested in four separate real estate businesses involved in the brokerage acquisition, holding, operation, management, financing and sale of residential and commercial real estate, and have established a subsidiary to sell insurance products.

Acquisitions and Investments.

Billboards.

 

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On August 31, 2015, one of our subsidiaries entered into a purchase agreement with I-85 Advertising, LLC for the purchase of five static billboards with 10 faces and related personal property in Georgia from I-85 Advertising, LLC.    The cash purchase price was $1,294,900.

 

On February 16, 2016, one of our subsidiaries entered into an asset purchase agreement with Jag, Inc. and the sole voting shareholder of Jag, Inc., by which our subsidiary acquired billboards with 422 faces, 50 directional signs and other related assets in Wisconsin from Jag, Inc.   The purchase price for the acquired assets was $6,954,246, of which $687,500 was placed in escrow and the remainder was paid at closing. The purchase price is subject to certain post-closing working capital adjustments.

Also on February 16, 2016, one of our subsidiaries acquired a digital display with two faces and related personal property in Florida from Rose City Outdoor of Florida, LLC.  The cash purchase price for the acquired assets was $287,320. 

On October 16, 2015, we acquired an 8.33% interest in DFH Leyden, LLC ("DFH"), a Florida limited liability company, whose business is to manage the acquisition, holding, operation, management, financing and sale of residential real estate.  Our equity contribution was $377,732.   DFH was formed during 2015 and had no operations for the period ended December 31, 2015

 

On December 7, 2015, we acquired a 30% interest in Logic Real Estate Companies, LLC ("Logic"), a Delaware limited liability company, whose business is to engage in property management, and in the brokerage and capital market industries.  Our equity contribution was $195,000. Logic was formed on August 18, 2015.  In February 2016, Brendan J. Keating, the principal member of Logic, joined our Board of Directors.

On December 8, 2015, we acquired a 15% interest in TAG SW1, LLC ("TAG"), a Nevada limited liability company, whose business is to invest in retail centers.  At December 31, 2015, TAG had acquired investments in two retail centers located in Las Vegas, Nevada.  Our equity contribution was $97,500. In addition to our equity interest in TAG, Logic manages both the brokerage and property management services of the assets owned by TAG and is compensated for such services.  Mr. Keating also serves as a principal member of TAG.

On January 12, 2016, we purchased a 7.15% interest in DFH Leyden 2, LLC, a Florida limited liability company, whose business is to manage the acquisition, holding, operation, management, financing and sale of residential real estate and all matters incidental to or related thereto.  The purchase price of the investment was $159,167.  DFH Leyden 2 is related to DFH Leyden, LLC through common ownership and management.

 

Sales of Equity Securities

 

On February 13, 2015, Boulderado and Magnolia acquired from Richard Church approximately 95% of our issued and outstanding shares. Mr. Church also sold to each of Boulderado and Magnolia a 50% interest in a promissory note issued by us to Mr. Church in the principal amount of $298,224.  Mr. Church also conveyed to each of Boulderado and Magnolia a 50% interest in another promissory note issued by us to Mr. Church in the principal amount of $100,000.  Finally, Mr. Church retained a non-recourse promissory note issued by Ananda Holding, LLC ("Holding"), our wholly-owned subsidiary, in the principal amount of $135,494 (the "Holding Note").  These debt instruments, which in their principal amounts total $533,718, replaced all prior debt instruments issued by us to Mr. Church.

 

For the year ended December 31, 2015, we used $813,356 in operating activities as we commenced operations with the acquisitions of billboard operations in Alabama, Florida and Georgia and the costs associated with starting up our insurance services business, as well as the professional fees associated with these activities.  We invested $10,049,470 in connection with the acquisition of billboard businesses and other equipment and an additional $670,232 in connection with the acquisitions of interests in three separate real estate businesses involved in the acquisition, holding, operation, management, financing and sale of residential and commercial real estate, resulting in our using $10,719,702 in net cash in investing activities in Fiscal 2015.  During Fiscal 2015, we raised $24,500,000 through the direct sale of Class A common stock and common stock to Magnolia and Boulderado.    As a result, we generated $24,720,663 in net cash from financing activities in Fiscal 2015 and ended Fiscal 2015 with $13,189,066 in cash. In addition, Boulderado and Magnolia converted $505,154 in notes payable into our Class A common stock and Class A common stock warrants.

From January 1 through March 10, 2016, we have subsequently raised approximately an additional $25,122,033  through the sale of common stock.  This amount includes the conversion by each of Boulderado and Magnolia in February 2016 of the remaining $100,000 in principal and $6,028 in accrued interest in the promissory notes acquired by them in February 2015.  Since January 1, 2016, we have also made two acquisitions of billboard businesses.  In February, we acquired billboards with 422 faces, 50 directional signs and other assets located in Wisconsin for a purchase price of $6,954,246.01, of which $687,500 was placed in escrow and the remainder was paid at closing.  Also in February, we acquired a digital display with two faces and related personal property in Florida for a purchase price of $287,320.  In January, we Company purchased a 7.15% interest in DFH Leyden 2, LLC, a Florida limited liability company, whose business is to manage the acquisition, holding, operation, management, financing and sale of residential real estate.  The purchase price of the investment was $159,167.  At February 29, 2016, our cash position was $29,296,891 and we had no debt.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management has employed a framework consistent with Exchange Act Rule 13a-15(c), to evaluate our internal control over financial reporting described below. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the design and operation of our internal control over financial reporting as of December 31, 2015 based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.

As defined by Auditing Standard No. 5, "An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments," established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency or combination of deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.

 

In performing the assessment, management noted the following:

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This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our company's registered public accounting firm pursuant to rules of the SEC that permit our company to provide only management's report in this Annual Report on Form 10-K.

Alex B. Rozek, age 37, has been Co-Chairperson of our Board of Directors, Co-Chief Executive Officer and President since February 12, 2015, when he became a member of our Board of Directors.  Since July 2007, Mr. Rozek has served as the Manager of Boulderado Group, LLC, which is the investment manager of Boulderado Partners, LLC, a private investment partnership.  From 2004 to 2007, Mr. Rozek served as an analyst for Water Street Capital and Friedman Billings Ramsey Group.  Mr. Rozek graduated with a B.S.in Biology and a Minor in Chemistry from the University of North Carolina.  Our Board has determined that Mr. Rozek's 12 years' experience in investments and financial analysis qualifies him to be a member of the Board in light of the Company's business and structure.

Adam K. Peterson, age 34, has been Co-Chairperson of our Board of Directors since February 12, 2015, when he became a member of our Board of Directors.  Since June 2014, Mr. Peterson has served as the Manager of The Magnolia Group, LLC, an SEC registered investment advisor and the general partner of Magnolia Capital Fund, LP.  From June 2006 through August 2014, Mr. Peterson served as the Chief Investment Officer of Magnolia Capital Partners, LP and related entities. a family investment office.  From May 2004 through June 2006, Mr. Peterson was a financial analyst for Peter Kiewit Sons, Inc.  Mr. Peterson graduated with a B.S. in Finance from Creighton University.  Our Board has determined that Mr. Peterson's 12 years' experience in investments and financial analysis qualifies him to be a member of the Board in light of the Company's business and structure.

Jeffrey C. Piermont, age 35, has been the Chief Administrative Officer and Treasurer since May 2015 and our interim Chief Financial Officer and Principal Accounting Officer since January 1, 2016.  Since June 2010, Mr. Piermont has served as the President and COO of Boulderado Group, LLC, which is the investment manager  of Boulderado Partners, LLC, a private investment partnership, and one of our two principal stockholders.  Prior to joining Boulderado, Mr. Piermont worked at Alternative Investment Management, LLC from 2006 to 2010 as an Investment Professional concentrating his efforts on the firm's portfolio of hedge fund investments. Prior to joining Alternative Investment Management, Mr. Piermont was an Assistant Vice President at Merrill Lynch in New York from 2004 to 2006.  He focused on strategic and finance related initiatives for the company's Global Private Client business.  Before joining Merrill Lynch, Mr. Piermont was an Analyst in Citigroup's Corporate Strategy and Finance Group in the company's Global Wealth Management Business (Smith Barney) from 2003 to 2004.  Mr. Piermont graduated from Syracuse University in 2003 with a B.S. in Accounting and a B.S. in Finance.

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Michael J. Scholl, age 48, has served as President of General Indemnity Group LLC since October 2015. From May 2013 through October 2015, Mr. Scholl served as Senior Vice President for Allied Public Risk, a division of Aegis General Insurance Agency, which provides customized insurance products for public entity pools, cities, counties, schools and special service districts.  From November 2013 through May 2014, he served as Chief Operating Officer for American Public Risk, when its business was moved to Allied Public Risk. From November 2009 through October 2013, Mr. Scholl served as Vice President of Business and Product Development at the Argonaut Group.  He also served as Vice President for its Commercial Deposit Insurance Agency subsidiary, a direct provider of cyber-security and crime insurance, from August 2012 through September 2013.   From 1992 through November 2009, Mr. Scholl has held various positions as an actuary and in management at several different insurance firms.  Mr. Scholl is a credentialed actuary, and holds both a B.S. in Statistics, and a B.A. in Business (Economics) from the University of Miami and an M.S. in Statistics from Purdue University.

Board Leadership Structure and Role in Risk Oversight

 

 Committees and Director Selection

 

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Because we do not have a standing compensation committee, our full Board of Directors will undertake the functions of a compensation committee if any executive officer and director compensation is considered in the immediate future.  We do not now have any processes and procedures for the consideration and determination of executive and director compensation.

 

We have  adopted a code of ethics that applies to our Co-Chief Executive Officers, Principal Executive Officer, Principal Accounting Officer, Controller and persons performing similar functions within our company.

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Each of Messrs. Rozek and Peterson participate in a management incentive bonus plan (the "MIBP"), effective as of August 1, 2015, under which participants of such plan are eligible to receive cash bonus awards based on achievement by the company of certain net growth target objectives.  Each of Alex B. Rozek and Adam K. Peterson are eligible to participate in the management incentive bonus plan pursuant to their respective employment agreements.  The MIBP provides for a bonus pool, determined on an annual basis by the compensation committee of the board of directors, equal to up to 20% of the amount by which our stockholders' equity for the applicable fiscal year (excluding increases or decreases in stockholders' equity resulting from purchases or redemptions of our securities) exceeds 106% of our stockholders' equity for the preceding fiscal year.

 

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On February 13, 2015, Boulderado and Magnolia acquired from Richard Church, the former President and former sole member of our Board of Directors, approximately 95% of our issued and outstanding shares. Mr. Church also sold to each of Boulderado and Magnolia a 50% interest in a promissory note issued by us to Mr. Church in the principal amount of $298,224.  Mr. Church also conveyed to each of Boulderado and Magnolia a 50% interest in another promissory note issued by us to Mr. Church in the principal amount of $100,000.  Finally, Mr. Church retained a non-recourse promissory note issued by Ananda Holding, LLC ("Holding"), our wholly-owned subsidiary, in the principal amount of $135,494 (the "Holding Note").  These debt instruments, which in their principal amounts total $533,718, replaced all prior debt instruments issued by us to Mr. Church.
 

 

 

On July 22, 2015, we entered into subscription agreements with each of Boulderado and Magnolia whereby Boulderado purchased 250,000 shares of our common stock and Magnolia purchased 1,200,000 shares of our common stock, each at a purchase price of $10.00 per share, resulting in gross proceeds to us of $14,500,000.
 

During September 2015, Ananda made a distribution to its members.  Our share of the distribution was $32,000 and was distributed directly to Mr. Church as a principal payment on the Holding Note, reducing the outstanding principal balance to $103,494.   On December 31, 2015, we transferred our interest in Ananda Investments, LLC ("Ananda") to Mr. Church in full satisfaction of our note payable in the principal amount of $103,494 and accrued interest of $6,437.  In connection with the transfer of its interest in Ananda, we were released in early 2016 from our limited guaranty of Ananda's mortgage note payable.

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 On December 7, 2015, we acquired a 30% ownership position in Logic Real Estate Companies, LLC, a Delaware limited liability company ("Logic"), which provides brokerage and management services for commercial real estate.  Brendan J. Keating holds a controlling interest in Logic and subsequently joined our Board of Directors in February 2016.  We paid $195,000 for our ownership position in Logic.   On December 8, 2015, we acquired a 15% interest in TAG SW1, LLC ("TAG"), a Nevada limited liability company, whose business is to invest in retail centers.  At December 31, 2015, TAG had acquired investments in two retail centers located in Las Vegas, Nevada.  Our equity contribution was $97,500. In addition to our equity interest in TAG, Logic manages both the brokerage and property management services of the assets owned by TAG and is compensated for such services.  The Aligned Group, LLC, an entity owned by each of Mr. Keating, Mr. Peterson and an entity controlled by Mr. Peterson, is the Manager of TAG. No asset management fees or carry fees are charged to TAG by The Aligned Group, LLC. 

 

In January 2016, we commenced our 2016 Financing.  As of March 24, 2016, we have received investments totaling approximately $25,233,000 from 12 investors, including investments of approximately $18,053,014 from Magnolia and approximately $2,553,019 from Boulderado.  Each holder of our common stock who is an accredited investor will be eligible to participate in a rights offering of common stock, which we anticipate will commence later this year when the 2016 Financing is completed.  Under the terms of the rights offering, each of our stockholders may participate based on his, her or its proportionate ownership of common stock prior to the commencement of the 2016 offering and will have at least 35 days from the commencement date of the rights offering to elect to subscribe to purchase common stock at a price of $10.15 per share of common stock.   Boulderado and Magnolia will not participate further in the rights offering.

As previously discussed in Item 11 under "Employment Contracts and Termination of Employment and Change-in-Control Arrangements," we entered into employment agreements with each of Messrs. Peterson, Rozek and Scholl in 2015.

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		Year Ended December 31
		2015				2014
Audit Fees (1)		$	96,000			$	23,500
Audit-Related Fees		$	60,000			$	-0-
Tax Fees		$	-0-			$	-0-
All Other Fees		$	-0-			$	-0-

(1)

Fees for audit services include fees associated with the annual audit and the review of our quarterly reports on Form 10-Q.

	Audit Committee Pre-Approval of Audit and Permissible
	Non-Audit Services of Independent Registered Public Accounting Firm.

 

 

 

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BOSTON OMAHA CORPORATION

(formerly known as REO Plus, Inc.)

and SUBSIDIARIES

 

Consolidated Financial Statements

 

For the Years Ended December 31, 2015 and 2014

 

 

Consolidated Balance Sheets
ASSETS
		December 31,
		2015				2014
Current Assets:
Cash		$	13,189,066			$	1,461
Accounts receivable, net			276,750				-
Prepaid expense			70,484				-
Total Current Assets			13,536,300				1,461
Property and Equipment:
Structures and displays			4,548,473				-
Office Equipment			2,633				-
Accumulated depreciation			(307,367	)			-
Total Property and Equipment, net			4,243,739				-
Other Assets:
Goodwill			4,389,664				-
Intangible assets, net			958,265				-
Investment in unconsolidated affiliates			657,528				47,263
Total Other Assets			6,005,457				47,263
Total Assets		$	23,785,496			$	48,724
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses		$	152,672			$	373
Accounts payable, stockholder			2,721				-
Notes payable, stockholders			100,000				-
Note payable, former stockholder			-				494,460
Accrued interest, stockholders			4,384				-
Accrued interest, former stockholder			-				21,270
Deferred revenue			30,204				-
Total Current Liabilities			289,981				516,103
Commitments			-				-
Total Liabilities			289,981				516,103
Stockholders' Equity (Deficit):
Preferred stock, $.001 par value, 3,000,000 shares
authorized, 0 shares issued and outstanding			-				-
Common stock, $.001 par value, 28,700,000 shares
authorized, 1,716,954 and 266,954 shares
issued and outstanding, respectively			1,717				267
Class A common stock, $.001 par value, 1,300,000 shares
authorized, 1,055,560 and 0 shares issued
and outstanding, respectively			1,056				-
Additional paid-in capital			25,062,544				54,733
Accumulated deficit			(1,569,802	)			(522,379	)
Total Stockholders' Equity (Deficit)			23,495,515				(467,379	)
Total Liabilities and Stockholders' Equity (Deficit)		$	23,785,496			$	48,724

 

 

Consolidated Statements of Operations
		For the Years Ended
		December 31,
		2015				2014
Revenues:
Billboard rentals		$	713,212			$	-
Consulting fees, related party			9,700				43,874
Total Revenues			722,912				43,874
Costs and Expenses:
Cost of revenues (exclusive of depreciation and amortization)			229,507				-
Professional fees			737,451				66,715
Depreciation			307,367				-
Leased employees			241,803				-
General and administrative			153,715				-
Amortization			150,436				-
Bad debt expense			9,511				-
Total Costs and Expenses			1,829,790				66,715
Net Loss from Operations			(1,106,878	)			(22,841	)
Other Income (Expense):
Equity in income (loss) of unconsolidated affiliates			3,813				(15,805	)
Gain on sale of investment in unconsolidated affiliate			78,150				-
Interest expense			(22,508	)			(28,132	)
Net Loss Before Income Tax			(1,047,423	)			(66,778	)
Income Tax (Provision) Benefit			-				-
Net Loss		$	(1,047,423	)		$	(66,778	)
Basic and Diluted Net Loss per Share		$	(0.71	)		$	(0.25	)
Basic and Diluted Weighted Average Shares Outstanding			1,481,310				266,954

 

Consolidated Statements of Changes in Stockholders' Equity (Deficit)

		No. of shares
		Common Stock				Class A Common Stock				Common Stock				Class A Common Stock				Additional Paid-in Capital				Accumulated Deficit				Total
Stockholders' (deficit),
January 1, 2014			266,954				-			$	267			$	-			$	54,733			$	(455,601	)		$	(400,601	)
Net loss			-				-				-				-				-				(66,778	)			(66,778	)
Stockholders' (deficit),
December 31, 2014			266,954				-				267				-				54,733				(522,379	)			(467,379	)
Capital contributions			-				-				-				-				5,163				-				5,163
Stock and warrants
issued for cash			1,450,000				1,000,000				1,450				1,000				24,497,550				-				24,500,000
Note conversions							55,560				-				56				505,098				-				505,154
Net loss			-				-				-				-				-				(1,047,423	)			(1,047,423	)
Stockholders' equity,
December 31, 2015			1,716,954				1,055,560			$	1,717			$	1,056			$	25,062,544			$	(1,569,802	)		$	23,495,515

 

 

Consolidated Statements of Cash Flows
		For the Years Ended
		December 31,
		2015				2014
Cash Flows from Operating Activities:
Net Loss		$	(1,047,423	)		$	(66,778	)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization			457,803				-
Bad debts			9,511				-
Equity in (income) loss of unconsolidated affiliates			(3,813	)			15,805
Gain on sale of investment in unconsolidated affiliate			(78,150	)			-
Changes in operating assets and liabilites:
Accounts receivable			(286,262	)			-
Prepaid expenses			(70,484	)			3,000
Accounts payable and accrued expenses			155,020				(6,127	)
Accrued interest			20,238				4,249
Deferred revenue			30,204				-
Net Cash Used in Operating Activities			(813,356	)			(49,851	)
Cash Flows from Investing Activities:
Business acquisitions of structures, displays,
and intangible assets			(9,924,565	)			-
Purchase of display and equipment			(124,905	)			-
Acquisitions of investments in unconsolidated affiliates			(670,232	)			-
Net Cash Used in Investing Activities			(10,719,702	)			-
Cash Flows from Financing Activities:
Proceeds from notes payable to stockholders			219,000				43,500
Payments on notes payable to stockholders			(3,500	)			(20,000	)
Proceeds from issuance of stock and warrants			24,500,000				-
Contribution of capital			5,163				-
Net Cash Provided in Financing Activities			24,720,663				23,500
Net Increase (Decrease) in Cash			13,187,605				(26,351	)
Cash, Beginning of Year			1,461				27,812
Cash, End of Year		$	13,189,066			$	1,461
Interest Paid in Cash		$	2,270			$	23,883
Income Taxes Paid in Cash		$	-			$	-

 

Consolidated Statements of Cash Flows (Continued)
Supplemental Schedules of Non-cash Investing and Financing Activities
		For the Years Ended
		December 31,
		2015				2014
Restructure of notes payable, stockholders		$	398,224			$	-
Restructure of note payable, related party			135,494				-
Notes payable and accrued interest converted
to Class A common stock			505,154				-
Distribution from unconsolidated affiliate applied to
note payable, related party			32,000				-
Note payable and accrued interest
exchanged for investment in unconsolidated affiliate			109,930				-
Decrease in investment in unconsolidated affiliate			31,780				-

 

 

 

 

 

Boston Omaha Corporation (formerly known as REO Plus, Inc.) ("the Company") was organized on August 11, 2009 for the purpose of investing in real estate.  The Company's operations include its ownership of multiple billboards in Florida, Georgia and Alabama and equity method investments in several real estate companies.  During 2016 the Company will begin operations in the insurance industry through its subsidiary, General Indemnity Group, LLC.

 

Previously, the Company realized revenues from consulting services which were attributable to one client that was related to a former officer and director of the Company.

 

On March 16, 2015, the Company converted its charter from Texas to Delaware.

 

The Company completed an acquisition of outdoor advertising assets and entered the outdoor advertising business on June 19, 2015.  On July 23, 2015 and August 31, 2015, the Company completed two additional acquisitions of outdoor advertising assets.