BOSTON OMAHA Corp - Quarter Report: 2016 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

☒	QUARTERLY 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

For the transition period from                    to

Commission file number 333-170054

 (Address of principal executive offices)

 

(857) 256-0079

 (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  ☒     No  ☐

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  ☐     No  ☒

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: 4,639,494 common shares and 1,055,560 Class A common shares as of May 10, 2016.

BOSTON OMAHA CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
Unaudited
ASSETS
		March 31,				December 31,
		2016				2015
Current Assets:
Cash		$	30,695,464			$	13,189,066
Restricted cash			14,970
Accounts receivable, net			346,482				276,750
Prepaid expense			59,268				70,484
Total Current Assets			31,116,184				13,536,300
Property and Equipment:
Structures and displays			8,031,413				4,548,473
Vehicles and equipment			91,738				2,633
Accumulated depreciation			(490,335	)			(307,367	)
Total Property and Equipment, net			7,632,816				4,243,739
Other Assets:
Goodwill			6,547,923				4,389,664
Intangible assets, net			2,238,064				958,265
Investment in unconsolidated affiliates			772,534				657,528
Total Other Assets			9,558,521				6,005,457
Total Assets		$	48,307,521			$	23,785,496
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses		$	369,061			$	152,672
Accounts payable, stockholder			2,721				2,721
Notes payable, stockholders			-				100,000
Accrued interest, stockholders			-				4,384
Deferred revenue			31,528				30,204
Total Current Liabilities			403,310				289,981
Stockholders' Equity:
Preferred stock, $.001 par value, 1,000,000 shares
authorized, 0 shares issued and outstanding			-				-
Common stock, $.001 par value, 11,000,000 shares
authorized, 4,204,494 and 1,716,954 shares
issued and outstanding, respectively			4,205				1,717
Class A common stock, $.001 par value, 1,161,116 shares
authorized, 1,055,560 issued and outstanding			1,056				1,056
Additional paid-in capital			50,308,590				25,062,544
Accumulated deficit			(2,409,640	)			(1,569,802	)
Total Stockholders' Equity			47,904,211				23,495,515
Total Liabilities and Stockholders' Equity		$	48,307,521			$	23,785,496

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations
Unaudited
		For the Three Months Ended
		March 31,
		2016				2015
Revenues:
Billboard rentals		$	513,544			$	-
Consulting fees			-				9,700
Total Revenues			513,544				9,700
Costs and Expenses:
Cost of revenues (exclusive of depreciation and amortization)			190,735				-
Professional fees			345,520				72,371
Leased employees			217,435				-
General and administrative			208,924				50
Depreciation			182,968				-
Amortization			134,492				-
Bad debt expense			27,405				-
Total Costs and Expenses			1,307,479				72,421
Net Loss from Operations			(793,935	)			(62,721	)
Other Income (Expense):
Equity in income (loss) of unconsolidated affiliates			(44,161	)			3,772
Interest expense			(1,742	)			(8,294	)
Net Loss Before Income Tax			(839,838	)			(67,243	)
Income Tax (Provision) Benefit			-				-
Net Loss		$	(839,838	)		$	(67,243	)
Basic and Diluted Net Loss per Share		$	(0.19	)		$	(0.25	)
Basic and Diluted Weighted Average Shares Outstanding			4,455,799				266,954

 

See accompanying notes to the unaudited consolidated financial statements.

BOSTON OMAHA CORPORATION AND SUBSIDIARIES  Consolidated  Statements of Cash Flows
Unaudited
		For the Three Months Ended
		March 31,
		2016				2015
Cash Flows from Operating Activities:
Net Loss		$	(839,838	)		$	(67,243	)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization			317,460				-
Bad debt expense			27,405				-
Equity in loss (income) of unconsolidated affiliate			44,161				(3,772	)
Changes in operating assets and liabilities:
Accounts receivable			9,203				-
Prepaid expenses			11,216				-
Accounts payable and accrued expenses			216,389				50,152
Accrued interest			1,634				6,024
Deferred revenue			1,324				-
Net Cash Used in Operating Activities			(211,046	)			(14,839	)
Cash Flows from Investing Activities:
Deposits to restricted cash			(14,970	)			-
Purchase of equipment			(9,368	)			-
Business acquisitions			(7,241,567	)
Acquisition of investment			(159,167	)			-
Net Cash Used in Investing Activities			(7,425,072	)			-
Cash Flows from Financing Activities:
Proceeds from notes payable to stockholders			-				19,000
Payments on notes payable to stockholders			-				(3,500	)
Proceeds from issuance of stock			25,142,516				-
Contribution of capital			-				1,208
Net Cash Provided by Financing Activities			25,142,516				16,708
Net Increase (Decrease) in Cash			17,506,398				1,869
Cash, Beginning of Period			13,189,066				1,461
Cash, End of Period		$	30,695,464			$	3,330
Interest Paid in Cash		$	108			$	2,270
Income Taxes Paid in Cash		$	-			$	-

 

 

 

BOSTON OMAHA CORPORATION AND SUBSIDIARIES Supplemental Schedules of Non-cash Financing Activities
Unaudited
		For the Three Months Ended
		March 31,
		2016				2015
Restructure of notes payable, stockholders		$	-			$	398,224
Restructure of note payable, related party			-				135,494
Notes payable and accrued interest converted
to common stock			106,018				-

 

See accompanying notes to the unaudited consolidated financial statements.

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. Any of the forward-looking statements that we make in this quarterly report on Form 10-Q and in other public reports and statements we make may turn out to be inaccurate as a result of our beliefs and assumptions we make in connection with the factors set forth above or because of other unidentified and unpredictable factors. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. These risks could cause our actual results for 2016 and beyond to differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect the Company's financial condition, liquidity and operating and stock price performance.

General

On August 31, 2015, Link Media Alabama, LLC, which is owned by Link Media Holdings, LLC, entered into an Asset Purchase Agreement with I-85 Advertising, LLC, the members of I-85 Advertising, LLC and Canton Partners (an affiliate of I-85 Advertising, LLC), by which Link Media Alabama, LLC acquired five billboards, rights to certain easements, and related assets from I-85 Advertising, LLC.   The billboards and related assets are located along Interstate 85 in Georgia.  The purchase price for the acquired assets was $1,294,900 paid at closing.

On April 21, 2016, our subsidiary, General Indemnity Group, LLC, acquired the stock of The Warnock Agency, Inc., a brokerage firm selling surety insurance.  
 

On June 19, 2015, and in connection with the acquisition of certain outdoor billboard assets of Bell Media, LLC, we entered into subscription agreements with each of Boulderado and Magnolia, whereby each of Boulderado and Magnolia purchased 500,000 shares of our newly established Class A Common Stock at a purchase price of $10.00 per share, resulting in gross proceeds to us of $10,000,000. Each of Boulderado and Magnolia also extinguished all principal and interest due under two promissory notes, each in the principal amount of $149,112, assigned to us on February 13, 2015 from Richard Church, the original holder of the notes.  As a result of this note extinguishment, each of Boulderado and Magnolia received 15,164 additional shares of Class A Common Stock.  At the same time, Boulderado and Magnolia also converted all sums due under the $100,000 convertible promissory notes we issued to each of them on April 10, 2015, such that each of Boulderado and Magnolia received 12,616 shares of Class A Common Stock at a conversion price of $8.00 per share.  In addition, each of Boulderado and Magnolia received warrants to purchase one share of Class A Common Stock at a price of $10.00 per share for each 10 shares of Class A Common Stock purchased, resulting in each of Boulderado and Magnolia receiving warrants to purchase 52,778 shares of Class A Common Stock.  These warrants are exercisable at any time on or before June 18, 2025. Of these warrants, 51,516 are exercisable at $10.00 per share and 1,262 are exercisable at $8.00 per share.

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.

 

Each holder of our common stock on January 15, 2016 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 Financing 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.
 

On June 17, 2015, we amended and restated our Certificate of Incorporation.   As part of the Amended and Restated Certificate of Incorporation, we:

*           Effected a 1:7 reverse stock split effective as of June 17, 2015.  This reverse stock split does not impact the number of shares of Class A Common Stock subsequently issued on June 19, 2015.

*           Created 12,000,000 shares of Class A Common Stock.  Each share of Class A Common Stock is identical to the Common Stock in liquidation, dividend and similar rights.  The only difference is that each Class A Common Stock has 10 votes for each share held, while the Common Stock has a single vote per share and certain actions cannot be taken without the approval of the holders of the Class A Common Stock. 

 

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.

 

Plan of Operation

Results of Operations - General

 

We were incorporated on August 10, 2009 for purposes of acquiring financially attractive real estate properties.  We made our first 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. We have subsequently changed our focus and have acquired several outdoor billboard businesses, acquired an insurance brokerage firm, and made minority investments in several real estate ventures.

 

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, we have elected to use the extended transition period for complying with new or revised accounting standards.  This election allows us 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, our financial statements may not be comparable to those of companies that comply with public company effective dates.

 

Results of Operations – Boston Omaha Corporation

 

 

Revenues.  During the first quarter of 2016, we had net revenues from billboard rentals of $513,544.  Results for the first quarter of 2016 include $133,168 of revenues from the assets acquired from Jag, Inc. acquisition which closed on February 16, 2016.  We had no net revenues from consulting services or any other sources in the first quarter of 2016, as compared to $9,700 in consulting revenues in the first quarter of 2015.  We no longer provide these real estate consulting services as we focus on outdoor billboard advertising and insurance services as our primary source of revenues.  We may in the future expand our business activities to include other service based businesses.

 

Expenses.  During the first quarter of 2016, we had expenses in the amount of $1,307,479, primarily from the acquisition of the three outdoor billboard businesses we acquired in 2015 and to a lesser extent from the billboard locations we acquired in February 2016.   Of this amount, $345,520 was associated with legal, audit, accounting and other expenses associated with these acquisitions and our costs associated with preparing and filing  audited financial statements with the Securities and Exchange Commission for certain acquisitions, as well as our other costs associated with our reporting requirements as a public company. In addition, non-cash expenditures included $182,968 associated with depreciation expenses and $134,492 was associated with amortization expenses.  We amortize intangible expenses over their estimated useful lives, which range between two and 50 years.  For the three months ended March 31, 2015, we had limited expenses of $72,421, primarily for professional fees.    

 

Net Loss from Operations.   We had a net loss from operations in the amount of $793,935 during the first quarter of 2016, compared to a net loss from operations in the amount of $62,721 during the first quarter of 2015.

 

Other Income (Expense).   During the first quarter of 2016, we had equity in loss of $44,161 of our investments in our unconsolidated real estate affiliates. We also incurred interest expense in the amount of $1,742 in connection with certain notes which were converted to our common stock during the first quarter of 2016.   For the first quarter of 2015, we had equity in income of our unconsolidated affiliate Ananda in the amount of $3,772 and interest expense on outstanding promissory notes of $8,294.

 

Net Loss.  We had a net loss of $839,838 for the three months ended March 31, 2016 as compared to a loss of $67,243 during the first quarter of 2015, or a per-share loss of $0.19 during the first quarter of 2016, compared to a per-share loss of $0.25 during the first quarter of 2015.

Liquidity and Capital Requirements

Currently, we own billboards in Alabama, Florida, Georgia and Wisconsin, a surety insurance brokerage firm we acquired in April 2016, and have minority investments in several real estate entities.  Our strategy is to continue to acquire other billboard locations and insurance businesses as well as acquire other businesses which we would expect to generate positive cash flows.  We currently expect to finance any future acquisition with cash, and seller or third party financing.  In the future, we may be able to satisfy a portion of the purchase price for a property with the Company's equity securities.  At March 31, 2016, we had $30,695,464 in cash.  As a result, we have adequate resources to complete a certain limited number of acquisitions with these proceeds.  We have raised $29,663,783 of our goal of $50,000,000 before June 30, 2016, of which $20,606,034 was invested by Magnolia and Boulderado.  We would need to procure cash to fund future acquisitions once these funds are exhausted.  

Management believes that its business interest in real estate and outdoor billboard advertising are not subject to significant seasonal variations.  Management further believes that the service nature of the businesses we operate may not be as impacted by inflation as more capital intensive businesses, since materials are not anticipated to be a significant component of our costs, and we currently possess businesses with relatively minimal capital expenditure needs.  However, management also believes inflation can affect all businesses.  Our labor, electricity usage, insurance, and other costs may be subject to inflationary pressures.  It should also be understood that we own digital billboards within our billboard assets, which must be replaced over time to maintain revenue levels and remain competitive, therefore depreciating faster than static billboards.  Historically, the cost of digital billboard faces has declined as the technology advanced, thus proving somewhat deflationary.  There is no guarantee that this will continue though, and the cost of digital billboard faces may increase.  In addition, significant decreases in general economic conditions may reduce outdoor advertising rates and adversely impact the real estate market.  Currently, we do not anticipate raising significant debt financing; therefore, we do not anticipate that operating results will be adversely affected by increased interest rates.  In the future though, we may seek to raise additional capital through debt or convertible debt financings, and in such an event, increased interest rates may increase the cost of any future borrowing.

Off-balance Sheet Arrangements

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 March 31, 2016 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.

 

Our management, including our principal executive officers 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.

Other than as disclosed above, 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 1. Legal Proceedings.

 

None.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the quarter ended March 31, 2016, we sold 2,812,540 shares of our common stock at a purchase price of $10.15 per share to accredited investors in an offering under Rule 506 of Regulation D, for total proceeds of $28,547,282.93.  There were no commissions paid in connection with the offering.  As previously reported in our Form 10-K for the fiscal year ending December 31, 2015 as filed with the Commission on March 30, 2016,   Magnolia Capital Fund, L.P. purchased 1,778,622 shares of common stock for $18,053,013, Boulderado Partners, LLC purchased 251,529 shares of common stock for $2,553,020, and a trust established by Brendan Keating, a director of the Company, purchased 25,000 shares of common stock for $253,750.  Adam Peterson, a director of the Company, is a principal in Magnolia Capital Fund, L.P. and Alex B. Rozek, a director of the Company, is a principal in Boulderado Partners, LLC.

 

Item 3. Defaults upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

 

(a)           The following exhibits are filed with this Quarterly Report or are incorporated herein by reference:

 

Exhibit

2.1(1)

Asset Purchase Agreement with Jag, Inc. dated February 19, 2016.

2.2(1)

Escrow Agreement with Jag, Inc. dated February 19, 2016

3.1(2)

Second Certificate of Amendment to Amended and Restated Certificate of Incorporation.

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

(1)

Incorporated by reference to the Registrant's Current Report on Form 8-K, filed with the SEC on February 23, 2016.

(2)

Incorporated by reference to the Registrant's Current Report on Form 8-K, filed with the SEC on March 14, 2016.

SIGNATURES

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.

 

 

BOSTON OMAHA CORPORATION

(Registrant)

 

 

By:/s/ Alex B. Rozek                                     

Alex B. Rozek,

President  (Principal Executive Officer)

 

May 16, 2016

 

By:/s/ Jeffrey C. Piermont                              

Jeffrey C. Piermont 

Interim Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

May 16, 2016