BOSTON OMAHA Corp - Quarter Report: 2018 September (Form 10-Q)

 

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		September 30,				December 31,
		2018				2017
ASSETS
Current Assets:
Cash and cash equivalents		$	4,817,750			$	6,838,345
Restricted cash			771,549				392,225
Accounts receivable, net			4,173,798				1,095,777
Interest receivable			276,208				-
Short-term investments			5,045,851				1,659,299
U.S. Treasury trading securities			-				83,100,805
U.S. Treasury securities available for sale			98,799,898				-
Prepaid expenses			3,147,327				755,121
Total Current Assets			117,032,381				93,841,572
Property and Equipment, net			42,530,414				9,111,013
Other Assets:
Goodwill			98,479,795				24,692,161
Intangible assets, net			40,442,719				9,349,623
Investments			32,275,045				13,901,281
Investments in unconsolidated affiliates			720,561				952,128
Funds held as collateral assets			895,957				1,056,330
Deferred policy acquisition costs			1,050,716				327,031
Other assets			265,829				245,945
Total Other Assets			174,130,622				50,524,499
Total Assets		$	333,693,417			$	153,477,084

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		September 30,				December 31,
		2018				2017
Current Liabilities:
Accounts payable and accrued expenses		$	3,127,080			$	2,077,635
Short-term payables for business acquisitions			2,298,967				497,000
Funds held as collateral			895,957				1,056,330
Unearned premiums			3,816,589				1,182,584
Deferred revenue			494,588				217,862
Total Current Liabilities			10,633,181				5,031,411
Long-term Liabilities:
Asset retirement obligations			2,094,223				-
Other long-term liabilities			1,316,000				-
Deferred tax liability			57,000				57,000
Total Liabilities			14,100,404				5,088,411
Redeemable Noncontrolling Interest			1,196,754				1,234,987
Stockholders' Equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, 0 shares issued and outstanding			-				-
Class A common stock, $.001 par value, 38,838,884 shares authorized, 21,008,024 and 13,307,157 shares issued and outstanding, respectively			21,008				13,307
Class B common stock, $.001 par value, 1,161,116 shares authorized, 1,055,560 shares issued and outstanding			1,056				1,056
Additional paid-in capital			335,183,802				158,350,410
Accumulated deficit			(16,809,607	)			(11,211,087	)
Total Stockholders' Equity			318,396,259				147,153,686
Total Liabilities, Redeemable Noncontrolling Interest, and Stockholders' Equity		$	333,693,417			$	153,477,084

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		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Revenues:
Billboard rentals, net		$	3,753,795			$	1,451,843			$	7,003,254			$	3,681,653
Premiums earned			814,944				550,778				1,799,293				1,574,877
Insurance commissions			793,934				349,480				2,310,802				892,246
Investment and other income			30,845				32,880				92,872				101,015
Total Revenues			5,393,518				2,384,981				11,206,221				6,249,791
Costs and Expenses:
Cost of billboard revenues (exclusive of depreciation and amortization)			1,432,787				756,128				2,998,408				1,866,437
Cost of insurance revenues			646,231				188,120				1,123,767				442,794
Employee costs			2,029,254				1,105,933				5,735,278				2,866,267
Professional fees			955,042				465,870				2,375,417				1,371,990
General and administrative			1,121,930				464,532				2,822,145				1,302,392
Amortization			1,608,708				517,176				3,059,948				1,313,075
Depreciation			469,163				274,707				1,104,570				731,415
Loss on disposition of assets			-				132,895				81,857				361,326
Bad debt expense			32,023				38,257				46,538				41,937
Accretion			3,436				-				9,431				-
Total Costs and Expenses			8,298,574				3,943,618				19,357,359				10,297,633
Net Loss from Operations			(2,905,056	)			(1,558,637	)			(8,151,138	)			(4,047,842	)
Other Income (Expense):
Interest income			459,821				-				1,551,767				-
Equity in income of unconsolidated affiliates			117,395				48,513				502,486				63,746
Unrealized gain on securities			13,419				-				126,722				-
Gain on disposition of investments			389,947				-				335,214				-
Interest expense			-				(1,832	)			(1,804	)			(5,887	)
Net Loss Before Income Taxes			(1,924,474	)			(1,511,956	)			(5,636,753	)			(3,989,983	)
Income Tax (Provision) Benefit			-				-				-				-
Net Loss			(1,924,474	)			(1,511,956	)			(5,636,753	)			(3,989,983	)
Noncontrolling interest in subsidiary (gain) loss			(6,567	)			-				38,233				-
Net loss attributable to common stockholders		$	(1,931,041	)		$	(1,511,956	)		$	(5,598,520	)		$	(3,989,983	)
Basic and Diluted Net Loss per Share		$	(0.09	)		$	(0.11	)		$	(0.29	)		$	(0.41	)
Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding			22,029,790				14,293,871				19,212,464				9,622,370

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		No. of shares
		Class A Common Stock				Class B Common Stock				Class A Common Stock				Class B Common Stock				Additional Paid-in Capital				Accumulated Deficit				Total
Stockholders' equity December 31, 2017			13,307,157				1,055,560			$	13,307			$	1,056			$	158,350,410			$	(11,211,087	)		$	147,153,686
Stock issued for cash			1,177,929				-				1,178				-				26,695,222				-				26,696,400
Stock issued for business acquisition			85,170				-				85				-				1,699,908				-				1,699,993
Stock issued to related parties for cash			6,437,768				-				6,438				-				149,993,562				-				150,000,000
Offering costs			-				-				-				-				(1,555,300	)			-				(1,555,300	)
Net loss attributable to common stockholders, September 30, 2018			-				-				-				-				-				(5,598,520	)			(5,598,520	)
Stockholders' equity September 30, 2018			21,008,024				1,055,560			$	21,008			$	1,056			$	335,183,802			$	(16,809,607	)		$	318,396,259

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		For the Nine Months Ended
		September 30,
		2018				2017
Cash Flows from Operating Activities:
Net Loss		$	(5,636,753	)		$	(3,989,983	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, amortization, and accretion			4,173,949				2,044,490
Loss on disposition of assets			81,857				361,326
Bad debt expense			46,538				41,937
Equity in earnings of unconsolidated affiliates			(502,486	)			(63,746	)
Unrealized gain on securities			(126,722	)			-
Gain on disposition of investments			(335,214	)			-
Changes in operating assets and liabilities:
Accounts receivable			(1,696,841	)			(517,339	)
Interest receivable			(276,208	)			-
Prepaid expenses			(607,228	)			(173,668	)
Distributions from unconsolidated affiliates			668,788				18,600
Deferred policy acquisition costs			(723,685	)			(87,942	)
Other assets			(16,930	)			(534	)
Accounts payable and accrued expenses			287,666				86,497
Unearned premiums			2,634,005				171,665
Deferred revenue			276,726				110,251
Deferred tax liabilities			-				(24,000	)
Net Cash Used in Operating Activities			(1,752,538	)			(2,022,446	)
Cash Flows from Investing Activities:
Payment on short-term payable for business acquisition			(427,500	)			-
Proceeds from disposition of assets			30,000				3,667
Purchases of equipment and related assets			(2,676,175	)			(1,855,743	)
Business acquisitions, net of cash acquired			(135,023,950	)			(10,586,890	)
Acquisition of investment in unconsolidated affiliate			(40,399	)			(66,000	)
Loan to investee			(2,116,972	)			-
Proceeds from loan to investee			2,116,972				-
Proceeds from sales of investments			644,043,048				584,659
Purchase of investments			(680,934,857	)			(3,874,593	)
Net Cash Used in Investing Activities			(175,029,833	)			(15,794,900	)
Cash Flows from Financing Activities:
Proceeds from issuance of stock			26,696,400				39,926,727
Proceeds from issuance of stock to related parties			150,000,000				52,467,336
Offering costs			(1,555,300	)			(960,972	)
Net Cash Provided by Financing Activities			175,141,100				91,433,091
Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash			(1,641,271	)			73,615,745
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period			7,230,570				29,844,068
Cash, Cash Equivalents, and Restricted Cash, End of Period		$	5,589,299			$	103,459,813
Interest Paid in Cash		$	1,804			$	5,887
Income Taxes Paid in Cash		$	-			$	-

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		For the Nine Months Ended
		September 30,
		2018				2017
Deposit on business acquisition applied to purchase		$	-			$	2,950,000
Equipment exchanged for note receivable			-				38,000
Payable as consideration for business acquisition			2,229,467				427,500
Asset retirement obligations			179,916				-
Note receivable exchanged for preferred stock			104,019				-
Class A common stock issued for business acquisition			1,699,993				-

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NOTE 1.        ORGANIZATION AND BACKGROUND

 

Boston Omaha was organized on August 11, 2009 with present management taking over operations in February 2015. Our operations include (i) our outdoor advertising business with multiple billboards across Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Virginia, West Virginia, and Wisconsin; (ii) our insurance business that specializes in surety bond underwriting and brokerage, and (iii) minority investments primarily in real estate services, homebuilding, and banking. Our billboard operations are conducted through our subsidiary, Link Media Holdings, LLC, and our insurance operations are conducted through our subsidiary, General Indemnity Group, LLC.

 

We completed an acquisition of an outdoor advertising business and entered the outdoor advertising industry on June 19, 2015. During 2015, 2016, 2017 and 2018, we completed fourteen additional acquisitions of outdoor advertising businesses.

 

On April 20, 2016, we completed an acquisition of a surety bond brokerage business. On December 7, 2016, we acquired a fidelity and surety bond business; and, from July through November 2017 we completed the acquisition of two surety brokerage businesses, and we acquired a majority stake in a third surety brokerage business, thus expanding our operations in insurance.

 

In our opinion, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of consolidated financial position and the consolidated results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the interim consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the years ended December 31, 2017 and 2016 as reported in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2018, have been omitted.

 

 

NOTE 2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation Policy

 

The financial statements of Boston Omaha Corporation include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, as follows:

 

Link Media Holdings, LLC which we refer to as “LMH”

Link Media Alabama, LLC which we refer to as “LMA”

Link Media Florida, LLC which we refer to as “LMF”

Link Media Wisconsin, LLC which we refer to as “LMW”

Link Media Georgia, LLC which we refer to as “LMG”

Link Media Midwest, LLC which we refer to as “LMM”

Link Media Omaha, LLC which we refer to as “LMO”

Link Media Southeast, LLC which we refer to as “LMSE”

Link Media Services, LLC which we refer to as “LMS”

Tammy Lynn Outdoor, LLC which we refer to as “Tammy Lynn”

General Indemnity Group, LLC which we refer to as “GIG”

General Indemnity Insurance Company PCC, LLC which we refer to as “GIIC”

The Warnock Agency, Inc. which we refer to as “Warnock”

United Casualty and Surety Insurance Company which we refer to as “UCS”

Surety Support Services, Inc. which we refer to as “SSS”

South Coast Surety Insurance Services, LLC which we refer to as “SCS”

Boston Omaha Investments, LLC which we refer to as “BOIC”

Boston Omaha Asset Management, LLC which we refer to as “BOAM”

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Consolidation Policy (Continued)

 

All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation.

 

Revenues

 

On January 1, 2018, we adopted Financial Accounting Standards Board, which we refer to as “FASB,” Accounting Standards Update, which we refer to as “ASU,” No. 2014-09 (Codified as Accounting Standards Codification, which we refer to “ASC,” 606), Revenue from Contracts with Customers using the cumulative effect transition method applied to those contracts which were not completed as of January 1, 2018 and are not accounted for under ASC 840 Leases. Results for the reporting periods beginning after January 1, 2018 are presented under ASC 606 or 840, while comparative information has not been adjusted and continues to be reported under ASC 605.

 

A majority of our billboard contracts are accounted for under ASC 840 and will continue to be accounted for under the topic until January 1, 2019, our adoption date of FASB ASU No. 2016-02 (Codified as ASC 842), Leases. Contracts which begin prior to January 1, 2019 and are accounted for under ASC 840 will continue to be accounted for as a lease until the contract ends or is modified. Contracts beginning or modified on or after January 1, 2019 which do not meet the criteria of a lease under ASC 842 will be accounted for under ASC 606 Revenue. The majority of our advertising space contracts will not meet the definition of a lease under ASC 842.

 

Premium revenues derived from our insurance operations are not subject to this guidance.

 

Revenue Recognition

 

Billboard Rentals

 

We generate revenue from outdoor advertising through the leasing of advertising space on billboards. The terms of the operating leases generally range from less than one month to three years and are generally billed monthly. Revenue for advertising space rental is recognized on a straight-line basis over the term of the contract. Advertising revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for operations. Payments received in advance of being earned are recorded as deferred revenue. Another component of billboard rentals consists of production services which include creating and printing advertising copy. Contract revenues for production services are recognized upon satisfaction of the contract, which is typically less than one week.

 

Deferred Revenues

 

We record deferred revenues when cash payments are received in advance of our performance obligation. The term between invoicing and when a payment is due is not significant. For certain services we require payment before the product or services are delivered to the customer. The balance of deferred income is considered short-term and will be recognized in revenue within twelve months.

 

Premiums and Unearned Premium Reserves

 

Premiums written are recognized as revenues based on a pro-rata daily calculation over the respective terms of the policies in-force. The cost of reinsurance ceded is initially written as prepaid reinsurance premiums and is amortized over the reinsurance contract period in proportion to the amount of insurance protection provided. Premiums ceded are netted against premiums written.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition (Continued)

 

Commissions

 

We generate revenue from commissions on surety bond sales. The insurance commissions are calculated based upon a stated percentage applied to the gross premiums on bonds. Commissions are earned as of the policy effective date and are nonrefundable.

 

Practical Expedients and Exemptions

 

Upon our transition to ASC 606 from ASC 840, we utilized the following practical expedients and exemptions from ASC 606. We generally expense sales commissions when incurred because the amortization period is one year or less. These costs are recorded within cost of billboard revenues (exclusive of depreciation and amortization). We do not disclose the value of unsatisfied performance obligations as the majority of our contracts with customers have an original expected length of less than one year. For contracts with customers which exceed one year the future amount to be invoiced to the customer corresponds directly with the value to be received by the customer.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09 (Codified as ASC 606), Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14 deferring the effective date from January 1, 2017 to January 1, 2018, while allowing for early adoption as of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. We adopted the provisions of ASU No. 2014-09 on January 1, 2018 using the cumulative effect transition method. We did not have an adjustment to our opening balance of accumulated deficit for the adoption of this update.

 

In February 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires entities to carry all investments in equity securities at fair value and recognize any changes in fair value in net income. Under the standard, equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient are eligible for the measurement alternative. We adopted the provisions of ASU No. 2016-01 on January 1, 2018, for our equity investments in private companies not accounted for under the equity method, using the measurement alternative, defined as cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted ASU No. 2016-18 on January 1, 2018. In accordance with the guidance of ASU No. 2016-18, changes in restricted cash have been included with cash and cash equivalents in the consolidated statements of cash flows. We retrospectively adopted the standard.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 2.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Recent Accounting Pronouncements (Continued)

 

The adoption increases the ending cash balance within our consolidated statements of cash flows by the aggregate amount of our restricted cash balances and requires a new disclosure to reconcile the cash balances within our consolidated statements of cash flows to the consolidated balance sheets. 

 

On January 1, 2018, we adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Payments. The ASU is required to be reflected on a retrospective basis and provides guidance on the classification of certain cash receipts and cash payments, including distributions received from an equity method investee. We adopted the cumulative earnings approach, whereby distributions received are considered to be returns on investment and, thus, should be classified as cash inflows from operating activities on our consolidated statement of cash flows. The adoption of ASU No. 2016-15 did not have a material impact on our consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), specifying the accounting for leases, which supersedes the leases requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessee and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, Topic 842 expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted.

 

In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842), Land Easement Practical Expedient for Transition to Topic 842. The update provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 upon adoption. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. We plan to elect the provided practical expedient within this update upon our adoption of Topic 842.

 

In July 2018, the FASB issued ASU No. 2018-10 Leases (Topic 842), Codification Improvements and ASU No. 2018-11 Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic 842. ASU No. 2018-10 clarifies certain provisions and corrects unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders’ equity. ASU No. 2018-11 provides an alternative transition method which allows recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented, and a practical expedient for separating contract components for the adoption of Topic 842. ASU No. 2018-10 and ASU No. 2018-11 (collectively, “the new lease standards”) are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently assessing the effect the new lease standards will have on our consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

 

NOTE 3.        RESTRICTED CASH

 

Restricted cash consists of the following:

 

 

The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated statements of cash flows that agrees to the total of those amounts as presented in the consolidated statements of cash flows.

 

 

 

NOTE 4.        ACCOUNTS RECEIVABLE

 

Accounts receivable consist of the following:

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

 

NOTE 5.           PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

 

Depreciation expense for the three months and nine months ended September 30, 2018 was $469,163, and $1,104,570 respectively; and for the three months and nine months ended September 30, 2017 was, $274,707 and $731,415, respectively. During the nine months ended September 30, 2018 and 2017, we incurred losses on the disposition of assets in the amount of $81,857 and $361,326, respectively.

 

 

NOTE 6.           BUSINESS ACQUISITIONS

 

2018 Acquisitions

 

During the nine months ended September 30, 2018, we completed three acquisitions of billboards and related assets. These acquisitions were accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below. A summary of the revenues and earnings of each since the acquisition dates included in the consolidated statements of operations for the three months and nine months ended September 30, 2018 is provided in the tables below.

 

Billboard Acquisitions

 

Tammy Lynn Outdoor, LLC

 

On July 31, 2018, our subsidiary, LMSE, entered into a purchase agreement with Tammy Lynn Outdoor, LLC, which we refer to as “Tammy Lynn,” based in Bluefield, West Virginia. The assets acquired are primarily located in West Virginia with additional acquired assets located in Virginia. The majority of the $16,688,254 purchase price was paid in cash, however, as part of the consideration for the purchase the seller received 85,170 shares of our Class A common stock. The acquisition was completed for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The preliminary purchase price allocation is based on internal information derived from our previous acquisitions in the Southeastern United States and will be revised when we have completed our evaluation. Due to the timing of the transaction, the initial accounting for the business acquisition is incomplete. Finite-lived intangible assets consist of customer relationships, permits, favorable leases, and a five year noncompetition agreement. We amortize the noncompetition agreement according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2018 Acquisitions (Continued)

 

Billboard Acquisitions (Continued)

 

Key Outdoor, Inc.

 

On August 22, 2018, our subsidiary, LMM entered into a purchase agreement with Key Outdoor, Inc., which we refer to as “Key,” Angela K. Dahl, and Robert A. Dahl, by which LMM acquired over 700 billboard structures and related assets from Key. The billboards and related assets are located in Illinois, Iowa and Missouri.

 

The purchase price for the acquired assets was $38,000,000, subject to certain post-closing adjustments, which totaled $233,894, and was paid in cash. A portion of the purchase price equal to $1,900,000 was held back by LMM and will be disbursed, subject to any claims for indemnification, over a 12 month period. Another $329,467 is being held back as required consent holdback. Both holdbacks are included in the caption “Short-term payables for business acquisitions” on our consolidated balance sheet as of September 30, 2018. Each of Key and Angela K. Dahl and Robert A. Dahl, Key’s principals, have also entered into five year noncompetition and nonsolicitation agreements in connection with the acquisition. Total cash distributed at closing was $36,004,427.

 

The provisional purchase price allocation is based on internal information derived from our previous acquisitions in the Midwestern United States and will be revised when an independent appraisal has been completed. Due to the timing of the transaction, the initial accounting for the business combination is incomplete. Finite-lived intangible assets consist of customer relationships, permits, and noncompetition and nonsolicitation agreements. We amortize the noncompetition and nonsolicitation agreements according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information.

 

Waitt Outdoor, LLC

 

On August 31, 2018, our subsidiary, LMO entered into a purchase agreement with Waitt Outdoor, LLC, which we refer to as “Waitt,” by which LMO acquired over 1,600 billboard structures and related assets from Waitt. The billboards and related assets are located in Kansas, Illinois, Iowa, Missouri and Nebraska.

 

The purchase price for the acquired assets was $82,000,000, subject to certain post-closing adjustments, which totaled $2,031,262, resulting in a total purchase price of $84,031,262. Cash paid at closing was $84,031,262 of which $4,102,500 is held in escrow, subject to any claims for indemnification. Waitt, WaittCorp Investments, LLC, and Mr. Michael J. Delich, the principal of Waitt, have also entered into a five year noncompetition and nonsolicitation agreement in connection with the acquisition.

 

The provisional purchase price allocation is based on internal information derived from our previous acquisitions in the Midwestern United States and will be revised when an independent appraisal has been completed. Due to the timing of the transaction, the initial accounting for the business combination is incomplete. Finite-lived intangible assets consist of customer relationships, permits, and noncompetition and nonsolicitation agreements. We amortize the noncompetition and nonsolicitation agreements according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information. We also acquired 17 easements. The easements are permanent easements which grant us the right to use real property not owned by us. Since the easements are perpetual, they are not amortized.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2018 Acquisitions (Continued)

 

Billboard Acquisitions (Continued)

 

The following tables present information for the 2018 business acquisitions for the nine months ended September 30, 2018, including amortization of finite intangible assets, revenues and earnings included in consolidated net loss for the three months and nine months ended September 30, 2018, and the costs of acquisition included in professional fees on our consolidated statement of operations for the three and nine months ended September 30, 2018.

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2018 Acquisitions (Continued)

 

Billboard Acquisitions (Continued)

 

 

During the nine months ended September 30, 2018, we had net cash outflows of $135,023,950 related to business acquisitions. During the nine months ended September 30, 2017, we had net cash outflows of $10,586,890 related to business acquisitions.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions

 

During the year ended December 31, 2017, we completed six business acquisitions of billboards and related assets and three insurance company acquisitions. These acquisitions were accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below. A summary of the revenues and earnings of each since the acquisition dates included in the consolidated statements of operations for the three months and nine months ended September 30, 2017 is provided in the tables below.

 

Billboard Acquisitions

 

Clear Channel Outdoor, Inc.

 

On January 9, 2017, our subsidiary, LMG, entered into a purchase agreement with Clear Channel Outdoor, Inc., which we refer to as “CCO,” for the purchase of over thirty billboard structures and related assets. The assets acquired are located in Georgia. The cash purchase price for the acquired business was $2,983,444, of which $2,950,000 had been deposited into the seller’s escrow account in November 2016 and was subsequently applied to the purchase price. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market. The purchase price allocation is based on an appraisal by an independent third party valuation firm. Finite-lived intangible assets consist of customer relationships and permits. Amortization is computed over the average period of expected benefit, determined from internal information.

 

Hartlind Outdoor, LLC

 

On January 31, 2017, our subsidiary, LMW, entered into a purchase agreement with Hartlind Outdoor, LLC, which we refer to as “Hartlind,” for the purchase of over ninety billboard structures and related assets. The assets acquired are located in Wisconsin. The cash purchase price for the acquired business was $2,817,000. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market. The purchase price allocation is based on an appraisal by an independent third party valuation firm. Finite-lived intangible assets consist of customer relationships, permits, and a noncompetition agreement. We amortize the noncompetition agreement according to the terms of the asset purchase agreement. Amortization of the other finite-lived intangible assets is computed over the average period of expected benefit, determined from internal information. We also acquired six easements. The easements are permanent easements which grant us the right to use real property not owned by us. Since these rights are perpetual, they are not amortized.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (Continued)

 

Billboard Acquisitions (Continued)

 

Southeastern United States

 

Subsequent to the CCO business acquisition, we made additional business acquisitions in the Southeastern United States as presented below.

 

Corey Companies, Inc.

 

On June 8, 2017, our subsidiaries, LMG and LMA, entered into a purchase agreement with Corey Companies, Inc., which we refer to as “Corey,” for the purchase of approximately thirty billboard structures, a fifty percent interest in three billboard structures, and related assets. The assets acquired are located in Georgia and Alabama. The cash purchase price for the acquired business was $2,991,314. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The purchase price allocation for the structures, faces and permits is based on internal information derived from our previous acquisitions in Alabama and Georgia. The purchase price allocation for customer relationships is based on an appraisal by an independent third party valuation firm. The independent appraisal resulted in a decrease in customer relationships of $314,000 and an increase in goodwill of $314,000. The related decrease in amortization expense for the nine months ended September 30, 2018 was $64,965. Finite lived intangible assets consist of customer relationships and permits. Amortization of the finite-lived intangible assets is computed over the average period of expected benefit, determined from internal information.

 

Vision Outdoor Media, LLC

 

On June 16, 2017, our subsidiary, LMG, entered into a purchase agreement with Vision Outdoor Media, LLC, which we refer to as “Vision,” for the purchase of three billboard structures and related assets. The assets acquired are located in Georgia. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The cash purchase price for the acquired business was $3,199,036. The purchase price allocation is based on internal information derived from our previous acquisitions in Alabama and Georgia. Finite-lived intangible assets consist of customer relationships and permits. Amortization of the finite-lived intangible assets is computed over the average period of expected benefit, determined from internal information.

 

View Media, LLC

 

On July 11, 2017, our subsidiary, LMG, entered into a purchase agreement for the purchase of one billboard structure and related assets. The assets acquired are located in Georgia. The cash purchase price of the acquisition was $623,596. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The purchase price allocation is based on internal information derived from our previous acquisitions in Alabama and Georgia. Finite-lived intangible assets consist of customer relationships and permits. Amortization of the finite-lived intangible assets is computed over the average period of expected benefit, determined from internal information.

 

In addition, we also made a small acquisition for a cash purchase price of $900,000.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (Continued)

 

Insurance Acquisitions

 

Surety Support Services, Inc.

 

On July 11, 2017, our subsidiary, GIG, entered into a purchase agreement for the purchase of 100% of the stock of an insurance brokerage company, Surety Support Services, Inc., which we refer to as “SSS.” The purchase price of the stock was $450,000, of which $22,500 was paid at closing, with $427,500 due in 2018, and is included in the caption “Short-term payables for business acquisitions” on our consolidated balance sheet as of December 31, 2017. During the nine months ended September 30, 2018, we made payments of $427,500 on the short-term payable for business acquisition.

 

The stock was acquired for the purpose of expanding our presence in the insurance market in the United States. The purchase price allocation is based on internal information derived from our previous insurance brokerage company acquisitions.

 

Finite-lived intangible assets consist of customer relationships and a noncompetition agreement. We amortize the noncompetition agreement according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information.

 

South Coast Surety Insurance Services, LLC

 

On October 31, 2017, our subsidiary, GIG, entered into a purchase agreement for the purchase of 70% of the membership units of an insurance brokerage company, South Coast Surety Insurance Services, LLC, which we refer to as ”SCS.” The cash purchase price of the units was $2,908,581, and was paid at closing. The units were acquired for the purpose of expanding our presence in the insurance market in the United States. The provisional purchase price allocation is based on internal information and will be revised when an independent appraisal has been completed. Due to the timing and complexity of the transaction, the initial accounting for the business combination is incomplete. We are still in the process of obtaining and assessing documentation of the contracts and relationships as well as assessing the initial valuation of the noncontrolling interest.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (Continued)

 

Insurance Acquisitions (Continued)

 

South Coast Surety Insurance Services, LLC (Continued)

 

The seller has agreed to remain as a principal of SCS. The purchase agreement contains an option for the seller to sell us the remaining units (a “put” option). The purchase agreement also contains an option for us to purchase the remaining units (a “call” option) upon the death, incapacitation, or termination of the seller’s employment. Upon exercise of the options by the seller or by us, the purchase price of the remaining units is to be calculated by a formula contained in the purchase agreement. Both the put and the call options are embedded in the purchase agreement, and are not legally detachable or separately exercisable. At any time following the closing date of our purchase, the seller has the option (the put option), but not the obligation to sell us all of the remaining 30% of the membership units. Should the seller exercise his option, we are obligated to purchase all of the remaining units, which we refer to as “redeemable NCI.” Since the put option is currently redeemable, in accordance with the guidance of ASC No. 480 - 10 (Subtopic- S99 - 30), Distinguishing Liabilities from Equity Overall, the redeemable NCI is presented on our consolidated balance sheet between liabilities and equity. Additionally, we are required to re-measure the value of the redeemable NCI as of the date of each balance sheet presented. We have calculated the value of the redeemable NCI based upon the redemption formula contained in the purchase agreement, and have determined that no adjustment is necessary as of September 30, 2018 and December 31, 2017, respectively.

 

Finite-lived intangible assets consist of customer relationships, trade names and trademarks, and a noncompetition agreement. We amortize the noncompetition agreement according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information.

 

Freestate Bonds, Inc.

 

On November 30, 2017, our subsidiary, Warnock entered into a purchase agreement for the purchase of 100% of the stock of an insurance brokerage company, Freestate Bonds, Inc., which we refer to as “Freestate.” The purchase price of the stock was $293,000, of which $223,500 was paid at closing, with $69,500 due on November 30, 2018, and is included in the caption “Short-term payables for business acquisitions” on our consolidated balance sheets as of September 30, 2018 and December 31, 2017. The stock was acquired for the purpose of expanding our presence in the insurance market in the United States. The purchase price allocation is based on internal information derived from our previous insurance brokerage company acquisitions. During May 2018, Freestate was reorganized into Warnock and Freestate was subsequently dissolved.

 

The following tables present information for the 2017 business acquisitions for the nine months ended September 30, 2017, including amortization of finite intangible assets, revenues and earnings included in consolidated net loss for the three months and nine months ended September 30, 2017, and the costs of acquisition included in professional fees on our consolidated statement of operations for the three and nine months ended September 30, 2017.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (Continued)

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (Continued)

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 6.           BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (Continued)

 

Pro Forma Information

 

The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2017. For all of the business acquisitions, depreciation and amortization have been included in the calculation of the below pro forma information based upon the actual acquisition costs. Depreciation is computed on the straight-line method over the estimated remaining economic lives of the assets, ranging from two years to fifteen years. Amortization is computed on the straight-line method over the estimated useful lives of the assets ranging from two to fifty years.

 

 

 

 

 

The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. With respect to CCO, Corey, Vision, and View, the above pro forma does not contain allocation of management overhead and other shared expenses for lines of business under common ownership, that were not acquired. The pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted to include the stock issued in connection with the acquisition of Tammy Lynn.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

 

NOTE 7.            INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

 

The future amortization associated with the intangible assets is as follows:

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 7.            INTANGIBLE ASSETS (Continued)

 

Amortization expense for the three months ended September 30, 2018 and 2017 was $1,608,708 and $517,176 respectively. Amortization expense for the nine months ended September 30, 2018 and 2017 was $3,059,948 and $1,313,075, respectively.

 

Future Amortization

 

The weighted average amortization period, in months, for intangible assets is as follows:

 

 

 

 

NOTE 8.            INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

 

Short-term Investments

 

Short-term investments consist of certificates of deposit having maturity dates of less than twelve months and are carried at cost, U.S. Treasury securities and a corporate bond that are held to maturity and mature in less than twelve months, and a convertible note receivable. The certificates of deposit are held to maturity and mature in the upcoming year. The U.S. Treasury notes, the corporate bond, and the certificates of deposit are held primarily by UCS. For the nine months ended September 30, 2018, gains on redemptions of U.S. Treasury notes held to maturity were $10,345 in excess of their amortized cost basis.

 

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 8.

INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)

 

Convertible Note Receivable

 

On September 13, 2016, we purchased an unsecured convertible note receivable from Breezeway Homes, Inc., which we refer to as “Breezeway,” for the principal sum of $100,000. The note bore interest at 3% per annum, with principal and accrued interest payable upon demand at the earlier of December 31, 2018 or the closing of Breezeway’s next equity financing.

 

In January 2018, Breezeway completed a second round of equity financing, in which we agreed to tender our promissory note in exchange for preferred stock. At the time that the note receivable was tendered, principal, together with accrued interest, was $104,019. At December 31, 2017, the balance of the note plus accrued interest was $103,896.

 

As part of the loan arrangement, the parties entered into a memorandum of understanding for the parties to work together on the sale of damage waiver insurance related products, which the parties may develop, to property managers, lessors, and renters for residential homes through Breezeway’s platform.

 

Note Receivable

 

On April 27, 2018, we made a short-term loan to CB&T Holding Corporation, which we refer to as “CB&T.” In connection with the short-term loan, CB&T issued us a promissory note in the principal amount of $2,116,972, with an interest rate of 15% per annum, and reimbursed us for certain costs associated with the transaction. The loan was repaid on June 1, 2018 together with $29,990 in interest.

 

U. S. Treasury Trading Securities and U.S. Treasury Securities Available for Sale

 

Our security investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings. Our trading securities consist of U.S. Treasury securities. Trading securities as of September 30, 2018 and December 31, 2017 are as follows:

 

 

We classify our investments in debt securities that we intend to hold for indefinite periods of time as “available for sale.” Our securities available for sale are carried at fair value in the balance sheet. Because we have elected the fair value option for these securities, unrealized holding gains and losses during the period are included in earnings. Interest income is recognized at the coupon rate. Securities available for sale as of September 30, 2018 are as follows:

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 8.

INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)

 

U. S. Treasury Trading Securities and U.S. Treasury Securities Available for Sale (Continued)

 

 

Long-term Investments

 

Long-term investments consist of certificates of deposit having maturity dates in excess of twelve months, and U.S. Treasury securities. The certificates of deposit have maturity dates ranging from 2019 through 2021. We have the intent and the ability to hold the investments to maturity. Certificates of deposit and U.S. Treasury securities are stated at carrying value which approximates fair value and are held by UCS.

 

Long-term investments consist of the following:

 

 

Equity Investments

 

On May 31, 2018, we invested $19,058,485 in voting common stock of CB&T, the privately held parent company of Crescent Bank & Trust. Our investment represents 14.99% of CB&T’s outstanding common stock. CB&T is a closely held corporation, whose majority ownership rests with one family.

 

During late December 2017, we invested $10,000,000 in non-voting common units of Dream Finders Holdings, LLC, a national homebuilder. Excluding their non-convertible preferred equity, our investment represents an approximately 5% ownership stake in the company.

 

During January 2018, we exchanged our convertible note receivable from Breezeway for 31,227 shares of preferred stock. The preferred stock is noncumulative and has a dividend rate of $.2665 per share, should dividends be declared. The preferred stock has one vote per share and is convertible into whole shares of common stock, determined according to the conversion formula contained in Breezeway’s amended and restated articles of incorporation.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months and Nine Months Ended September 30, 2018 and 2017

 

 

NOTE 8.

INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)

 

Equity Investments (Continued)

 

We reviewed our investments as of September 30, 2018 and December 31, 2017 and concluded that no impairment to the carrying value was required.

 

Investment in Unconsolidated Affiliates

 

We have various investments in equity method affiliates, whose businesses are in real estate and real estate services. Our interest in these affiliates ranges from 7.15% to 30%. One of the investments in affiliates, Logic Real Estate Companies, LLC, having a carrying amount of $418,801 on September 30, 2018, is managed by a member of our board of directors. During the nine months ended September 30, 2018, one of the investments, TAG SW 1, LLC, sold its remaining investments and realized a gain on the sale of its assets.

 

The following table is a reconciliation of our investments in equity affiliates as presented in investments in unconsolidated affiliates on our consolidated balance sheets:

 

 

The loss on investment in affiliate is related to the wind-down of TAG SW 1, LLC and is included on our consolidated statements of operations in the caption “Gain on disposition of investments.”