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

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q

 

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(MARK ONE)

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

Commission file number 001-38113

 

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BOSTON OMAHA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

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Delaware	27-0788438
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

1411 Harney St., Suite 200, Omaha, Nebraska 68102

(Address of principal executive offices)

 

(857) 256-0079

(Registrant’s telephone number)

 

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 17,528,249 shares of Class A common stock and 1,055,560 shares of Class B common stock as of May 11, 2018.

 

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BOSTON OMAHA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED MARCH 31, 2018

TABLE OF CONTENTS

 

	Page
Part I – Financial Information
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets – March 31, 2018 and December 31, 2017 (unaudited)	2
Consolidated Statements of Operations – Three months ended March 31, 2018 and March 31, 2017 (unaudited)	4
Consolidated Statement of Changes in Stockholders’ Equity – March 31, 2018 (unaudited)	5
Consolidated Statements of Cash Flows – Three months ended March 31, 2018 and March 31, 2017 (unaudited)	6
Notes to Unaudited Consolidated Financial Statements For the Three Months Ended March 31, 2018 and 2017	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	37
Item 4. Controls and Procedures.	37
Part II – Other Information
Item 1. Legal Proceedings.	38
Item 1A. Risk Factors.	38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	39
Item 3. Defaults Upon Senior Securities.	39
Item 4. Mine Safety Disclosures.	39
Item 5. Other Information.	39
Item 6. Exhibits.	39
Signatures	40
Exhibit Index	41

 

References in this Quarterly Report on Form 10-Q to “the Company,” “our Company,” “we,” “us,” ”our” and “Boston Omaha” refer to Boston Omaha Corporation and its consolidated subsidiaries, unless otherwise noted.

 

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		March 31,				December 31,
		2018				2017
Current Assets:
Cash and cash equivalents		$	60,171,072			$	6,838,345
Restricted cash			508,751				392,225
Accounts receivable, net			1,130,044				1,095,777
Interest receivable			201,445				-
Short-term investments			1,057,556				1,659,299
Trading securities			21,994,900				83,100,805
Debt securities available for sale			93,126,310				-
Prepaid expenses			767,458				755,121
Total Current Assets			178,957,536				93,841,572
Property and Equipment, net			9,538,056				9,111,013
Other Assets:
Goodwill			24,692,161				24,692,161
Intangible assets, net			8,589,288				9,349,623
Investments			14,382,162				13,901,281
Investments in unconsolidated affiliates			1,184,790				952,128
Funds held as collateral assets			1,011,330				1,056,330
Other			639,173				572,976
Total Other Assets			50,498,904				50,524,499
Total Assets		$	238,994,496			$	153,477,084

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		March 31,				December 31,
		2018				2017
Current Liabilities:
Accounts payable and accrued expenses		$	2,468,634			$	2,077,635
Short-term payables for acquisitions			137,000				497,000
Funds held as collateral			1,011,330				1,056,330
Unearned premiums and deferred revenue			1,413,652				1,400,446
Total Current Liabilities			5,030,616				5,031,411
Long-term Liabilities:
Asset retirement obligations			173,977				-
Deferred tax liability			57,000				57,000
Total Liabilities			5,261,593				5,088,411
Redeemable Noncontrolling Interest			1,194,820				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,17,128,847 and 13,307,157 shares issued and outstanding, respectively			17,129				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			245,800,367				158,350,410
Accumulated deficit			(13,280,469	)			(11,211,087	)
Total Stockholders' Equity			232,538,083				147,153,686
Total Liabilities, Redeemable Noncontrolling Interest, and Stockholders' Equity		$	238,994,496			$	153,477,084

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		For the Three Months Ended
		March 31,
		2018				2017
Revenues:
Billboard rentals		$	1,550,190			$	1,014,492
Premiums earned			477,304				492,542
Insurance commissions			765,184				333,168
Investment and other income			30,266				29,725
Total Revenues			2,822,944				1,869,927
Costs and Expenses:
Cost of billboard revenues (exclusive of depreciation and amortization)			722,834				491,085
Cost of insurance revenues			212,864				186,594
Employee costs			1,842,366				830,847
Professional fees			843,914				454,003
General and administrative			851,273				410,600
Amortization			760,335				373,226
Depreciation			328,693				223,467
Accretion			3,056				-
Total Costs and Expenses			5,565,335				2,969,822
Net Loss from Operations			(2,742,391	)			(1,099,895	)
Other Income (Expense):
Interest income			443,723				-
Equity in income (loss) of unconsolidated affiliates			283,662				(8,231	)
Unrealized loss on securities			(93,003	)			-
Interest expense			(1,540	)			(2,085	)
Net Loss Before Income Taxes			(2,109,549	)			(1,110,211	)
Income Tax (Provision) Benefit			-				-
Net Loss			(2,109,549	)			(1,110,211	)
Noncontrolling interest in subsidiary loss			40,167				-
Net loss attributable to common stockholders		$	(2,069,382	)		$	(1,110,211	)
Basic and Diluted Net Loss per Share		$	(0.13	)		$	(0.16	)
Basic and Diluted Weighted Average Shares Outstanding			15,399,625				6,897,375

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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			521,690				-				522				-				11,569,463				-				11,569,985
Stock issued to related parties for cash			3,300,000				-				3,300				-				76,886,700				-				76,890,000
Offering costs			-				-				-				-				(1,006,206	)			-				(1,006,206	)
Net loss attributable to common stockholders, March 31, 2018			-				-				-				-				-				(2,069,382	)			(2,069,382	)
Stockholders' equity March 31, 2018			17,128,847				1,055,560			$	17,129			$	1,056			$	245,800,367			$	(13,280,469	)		$	232,538,083

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		For the Three Months Ended
		March 31,
		2018				2017
Cash Flows from Operating Activities:
Net Loss		$	(2,109,549	)		$	(1,110,211	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, amortization, and accretion			1,092,084				596,693
Equity in (earnings) loss of unconsolidated affiliates			(283,662	)			8,231
Unrealized loss on securities			93,003				-
Changes in operating assets and liabilities:
Accounts receivable			(34,267	)			1,793
Interest receivable			(201,445	)			-
Short-term investments			-				(2,674	)
Prepaid expenses			(12,337	)			(116,202	)
Other assets			(66,197	)			23,345
Accounts payable and accrued expenses			390,999				87,992
Unearned premiums and deferred revenue			13,206				(74,207	)
Deferred tax liabilities			-				-
Net Cash Used in Operating Activities			(1,118,165	)			(585,240	)
Cash Flows from Investing Activities:
Payment on short-term payable on acquisition			(360,000	)			-
Purchases of equipment and related assets			(584,815	)			(317,090	)
Business acquisitions, net of cash acquired			-				(2,850,444	)
Acquisition of investment in unconsolidated affiliate			-				(66,000	)
Distributions from unconsolidated affiliate			51,000				2,700
Proceeds from sales of investments			164,980,390				499,462
Purchase of investments			(196,972,936	)			(2,054,709	)
Net Cash Used in Investing Activities			(32,886,361	)			(4,786,081	)
Cash Flows from Financing Activities:
Proceeds from issuance of stock			11,569,985				-
Proceeds from issuance of stock to related parties			76,890,000				-
Offering costs			(1,006,206	)			-
Net Cash Provided by Financing Activities			87,453,779				-
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash			53,449,253				(5,371,321	)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period			7,230,570				29,844,068
Cash, Cash Equivalents, and Restricted Cash, End of Period		$	60,679,823			$	24,472,747
Interest Paid in Cash		$	1,540			$	-
Income Taxes Paid in Cash		$	-			$	-

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		For the Three Months Ended
		March 31,
		2018				2017
Deposit on business acquisition applied to purchase		$	-			$	2,950,000
Asset retirement obligations			173,977				-
Note receivable exchanged for preferred stock			104,019				-

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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, and Wisconsin; (ii) our insurance business that specializes in surety bond underwriting and brokerage, and (iii) minority investments primarily in real estate services and homebuilding. 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 and 2017, we completed eleven 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”

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 “UC&S”

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

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

Freestate Bonds, Inc. which we refer to as “Freestate”

 

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

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenues

 

On January 1, 2018, we adopted FASB Accounting Standards Update (“ASU”) No. 2014-09 (Codified as 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. 

 

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 billboards. The terms of the operating leases 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 or due 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.

 

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 plan to utilize 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 of less than 5% in private companies, using the measurement alternative, defined as cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer.

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

In November 2016, the FASB issued ASU 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 2016-18 on January 1, 2018. In accordance with the guidance of ASU 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. 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 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Payments, which clarified guidance on the classification of certain cash receipts and payments in the consolidated statement of cash flows. The adoption of ASU 2016-15 did not have a material impact on our consolidated financial statements, and prior periods were not restated.

 

In February 2016, the FASB issued ASU 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. We are currently reviewing the provisions of the new standard and assessing the impact of its adoption.

 

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.

 

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 statement of cash flows that agrees to the total of those amounts as presented in the consolidated statement of cash flows.

 

 

 

NOTE 4.

ACCOUNTS RECEIVABLE

 

Accounts receivable consist of the following:

 

 

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NOTE 5.

PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

 

 

Depreciation expense for the three months ended March 31, 2018 and 2017 was $328,693 and $223,467, respectively.

 

NOTE 6.

BUSINESS ACQUISITIONS

 

There were no business acquisitions during the three months ended March 31, 2018. During the three months ended March 31, 2017, we had net cash outflows of $2,850,444 related to business acquisitions.

 

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 ended March 31, 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.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 6.

BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (continued)

 

Billboard Acquisitions (continued)

 

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.

 

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 remains preliminary and will be revised when we have completed further analysis of the customer base and occupancy rates. 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.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 6.

BUSINESS ACQUISITIONS (Continued)

 

2017 Acquisitions (continued)

 

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.

 

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 acquisitions” on our consolidated balance sheets as of March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018, we made a payment of $360,000 on the short-term payable for 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 non-competition agreement. We amortize the non-competition 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 (“NCI”).

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 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 (“redeemable NCI”). Since the put option is currently redeemable, in accordance with the guidance of ASC 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 March 31, 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 acquisitions” on our consolidated balance sheets as of March 31, 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.

 

The following tables present information for the 2017 business acquisitions for the three months ended March 31, 2017, including amortization of finite intangible assets, revenues and earnings included in consolidated net loss for the three months ended March 31, 2017, and the costs of acquisition included in professional fees on our consolidated statement of operations for the three months ended March 31, 2017.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 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 Ended March 31, 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.

 

Since there were no acquisitions during the quarter ended March 31, 2018, no pro forma results are included.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 6.

BUSINESS ACQUISITIONS (Continued)

 

Pro Forma Information (continued)

 

 

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.

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NOTE 7.

INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

 

 

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

 

 

Amortization expense for the three months ended March 31, 2018 and 2017 was $760,335 and $373,226, respectively.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 7.

INTANGIBLE ASSETS (Continued)

 

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 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 securities and the certificates of deposit are held by UC&S.

 

 

 

Convertible Note Receivable

 

On September 13, 2016, we purchased an unsecured convertible note receivable from Breezeway Homes, Inc. (“Breezeway”) for the principal sum of $100,000. The note bore interest at three percent (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.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 8.

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

 

Trading Securities and Debt 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 March 31, 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 debt 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. Debt securities available for sale as of March 31, 2018 are as follows:

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 8.

INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (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 UC&S.

 

Long-term investments consist of the following:

 

 

 

Cost Investments

 

During late December 2017, we invested $10,000,000 in non-voting common units of Dream Finders Holdings LLC, a national homebuilder. Our investment represents 4.38% of Dream Finders Holdings LLC’s equity. 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 $0.2665 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.

 

We reviewed our investments as of March 31, 2018 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%. Two of the investments in affiliates, Logic Real Estate Companies, LLC and TAG SW 1, LLC having a combined carrying amount of $647,450 on March 31, 2018, are managed by a member of our board of directors. During the three months ended March 31, 2018, TAG SW 1, LLC sold its investment and realized a gain on the sale of its assets. 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 8.

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

 

Investment in Unconsolidated Affiliates (continued)

 

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

 

 

 

NOTE 9.

FAIR VALUE

 

At March 31, 2018 and December 31, 2017, our financial instruments included cash, cash equivalents, restricted cash, receivables, marketable securities, investments, and accounts payable. The fair values of cash, cash equivalents, restricted cash, receivables, and accounts payable approximated carrying values because of the short-term nature of these instruments. Trading securities and debt securities available for sale are reported at fair values. Fair values for investments held at cost are not readily available, but are estimated to approximate fair value. The majority of the fair value is determined using observed prices of publicly traded debt, level 1 in the fair value hierarchy.

 

 

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NOTE 10.

ASSET RETIREMENT OBLIGATIONS

 

Our asset retirement obligations include the costs associated with the removal of structures, resurfacing of the land and retirement cost, if applicable, related to our outdoor advertising assets. The following table reflects information related to our asset retirement obligations:

 

 

 

NOTE 11.

CAPITAL STOCK

 

On February 22, 2018, we entered into a Class A Common Stock Purchase Agreement, pursuant to which we agreed to issue and sell to three limited partnerships up to an aggregate of $150,000,000 in unregistered shares of Class A common stock at a price of $23.30, a slight premium to the closing price of shares of Class A common stock of $23.29 on the NASDAQ Capital Market, as reported by NASDAQ on February 22, 2018. Two of the three limited partnerships are entities managed by The Magnolia Group, LLC, and the third limited partnership is an entity managed by Boulderado Group, LLC. The Class A Common Stock Purchase Agreement was approved by an independent special committee of our board of directors with the advice of independent legal counsel and an independent investment banking firm which provided a fairness opinion to the special committee. The closing of the first tranche of shares to be sold under the agreement occurred on March 6, 2018. It consisted of a total of 3,300,000 shares resulting in total gross proceeds of $76,890,000. The second tranche will consist of a total of 3,137,768 shares which will result in total gross proceeds of approximately $73,110,000. It is subject to both regulatory approval and the authorization of an increase of our authorized shares of Class A common stock by our stockholders, who approved the increase at a special meeting of stockholders held on May 4, 2018. The second tranche of this financing is expected to close in May 2018.

 

Also in February 2018, we filed a shelf registration statement with the SEC allowing us to sell up to $200,000,000 of our securities. This registration statement was declared effective by the SEC on February 9, 2018. We subsequently entered into a Sales Agreement with Cowen and Company, LLC, which we refer to as “Cowen,” relating to the sale of shares of our Class A common stock to be offered. In accordance with the terms of the Sales Agreement, we may offer and sell from time to time up to $50,000,000 of shares of our Class A common stock through Cowen acting as our agent. Cowen is not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Cowen and us. The compensation to Cowen for sales of Class A common stock sold pursuant to the Sales Agreement will be an amount equal to 3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. In early March 2018, Cowen sold an aggregate of 521,690 shares of our Class A common stock under this “at the market” offering, resulting in net proceeds to us of $11,222,885.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2018 and 2017

 

 

NOTE 11.

CAPITAL STOCK (Continued)

 

As of March 31, 2018 there were 105,556 outstanding warrants for our Class B common stock. A summary of warrant activity for the three months ended March 31, 2018 is presented in the following table.

 

 

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NOTE 12.

FUTURE MINIMUM LEASE PAYMENTS

 

In connection with the business acquisitions (See Note 6.), we acquired the leases for over 450 billboard locations. Some of the leases are non-cancelable operating leases having remaining terms ranging from month-to-month to 1,005 months. In many instances, we can cancel the lease with little or no penalty. Ground rents for the three months ended March 31, 2018 and 2017 were $403,112 and $287,143, respectively. Contingent rents included in ground rents for the three months ended March 31, 2018 and 2017 were $24,604 and $10,932, respectively.

 

We lease office space under leases expiring between 2018 and 2022. Rent expense included in general and administrative expense for the three months ended March 31, 2018 and 2017 was $96,537 and $44,816, respectively.

 

Future minimum rents are as follows for the twelve months ending March 31:

 

 

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NOTE 13.

INDUSTRY SEGMENTS

 

This summary presents our current segments, as described below.

 

General Indemnity Group, LLC

 

GIG conducts our insurance operations through its subsidiaries, Warnock, SSS, SCS, Freestate, UC&S, and GIIC. UC&S, SSS, SCS and Freestate clients are multi-state and Warnock clients are nationwide. Revenue consists of surety bond sales and insurance commissions. Currently, GIG’s corporate resources are used to support Warnock, SSS, SCS, Freestate, UC&S, and GIIC and to make additional business acquisitions in the insurance industry.

 

Link Media Holdings, LLC

 

LMH conducts our billboard rental operations. LMH advertisers are located in Alabama, Florida, Georgia, and Wisconsin.

 

 

 

 

 

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NOTE 14.

CUSTODIAL RISK

 

At March 31, 2018, we had approximately $58,025,000 in excess of federally insured limits on deposit with financial institutions.

 

NOTE 15.

SUBSEQUENT EVENTS

 

On April 27, 2018, we made a short-term loan to an unrelated third party business entity. In connection with the short-term loan, the business entity 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 promissory note is guaranteed by certain of the business entity’s principal shareholders and one guarantor has pledged its 4.9% ownership in the business entity as collateral, representing just under a 60% loan-to-book value ratio based on the business entity’s book value at December 31, 2017. 

 

For the month ended April 30, 2018, Cowen sold an additional 399,402 shares of our Class A common stock, under the “at the market” Sales Agreement, resulting in net proceeds to us of $8,767,299. (See Note 11.)

 

On May 4, 2018, we filed an amendment to our second amended and restated certificate of incorporation which increased our authorized shares of common stock. Our authorized capital stock now consists of 40,000,000 shares of common stock of which 38,838,884 shares are designated as Class A common stock and 1,161,116 shares are designated as Class B common stock. Class A common stock as of March 31, 2018 has been retroactively restated to reflect the increase in our authorized shares.

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