BOSTON OMAHA Corp - Quarter Report: 2020 March (Form 10-Q)

 

 

 

Table of Contents

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, 2020

 

☐	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, Zip Code)

 

(857) 256-0079

(Registrant’s telephone number, including area code)

 

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Securities registered under Section 12(b) of the Exchange Act:

 

Title of Class	Trading Symbol	Name of Exchange on Which Registered
Class A common stock, $0.001 par value per share	BOMN	The Nasdaq Stock Market LLC (NASDAQ Capital Market)

 

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 every Interactive Data File required to be submitted 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 such files).    Yes  ☒   No ☐ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	☐	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: 22,495,555 shares of Class A common stock and 1,055,560 shares of Class B common stock as of May 7, 2020.

 

 

 

 

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BOSTON OMAHA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED March 31, 2020

TABLE OF CONTENTS

 

	Page
Part I – Financial Information	4
Item 1. Consolidated Financial Statements (Unaudited).	4
Consolidated Balance Sheets – March 31, 2020 and December 31, 2019	4
Consolidated Statements of Operations – Three Months Ended March 31, 2020 and March 31, 2019	6
Consolidated Statements of Changes in Stockholders’ Equity – March 31, 2020 and March 31, 2019	7
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2020 and March 31, 2019	9
Notes to Consolidated Financial Statements	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	42
Item 4. Controls and Procedures.	42
Part II – Other Information	44
Item 1. Legal Proceedings.	44
Item 1A. Risk Factors.	44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	44
Item 3. Defaults Upon Senior Securities.	44
Item 4. Mine Safety Disclosures.	44
Item 5. Other Information.	44
Item 6. Exhibits.	44
Exhibit Index	45
Signatures	46

 

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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ASSETS
		March 31,				December 31,
		2020				2019
Current Assets:
Cash and cash equivalents		$	51,606,579			$	16,028,514
Restricted cash			483,150				343,518
Accounts receivable, net			4,832,526				4,190,543
Interest receivable			293,052				456,827
Short-term investments			6,698,220				6,547,171
Marketable equity securities			59,635,714				55,907,927
U. S. Treasury securities available for sale			-				75,409,199
Funds held as collateral assets			2,409,151				1,858,161
Prepaid expenses			1,193,540				1,422,637
Total Current Assets			127,151,932				162,164,497
Property and Equipment, net			39,552,183				36,825,019
Other Assets:
Goodwill			115,306,852				106,272,501
Intangible assets, net			35,375,094				32,271,581
Investments			25,807,025				42,638,240
Investments in unconsolidated affiliates			12,639,370				771,805
Deferred policy acquisition costs			2,272,093				2,349,699
Right of use assets			53,720,954				53,249,985
Other			314,553				364,883
Total Other Assets			245,435,941				237,918,694
Total Assets		$	412,140,056			$	436,908,210

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY
		March 31,				December 31,
		2020				2019
Current Liabilities:
Accounts payable and accrued expenses		$	4,646,205			$	5,675,096
Short-term payables for business acquisitions			415,666				416,166
Lease liabilities			3,930,899				3,801,727
Funds held as collateral			2,409,151				1,858,161
Unearned premiums			7,503,608				8,035,756
Current maturities of long-term debt			727,710				504,170
Deferred revenue			1,740,820				1,390,154
Other current liabilities			398,750				-
Total Current Liabilities			21,772,809				21,681,230
Long-term Liabilities:
Asset retirement obligations			2,085,236				2,044,705
Lease liabilities			48,666,787				48,199,652
Long-term debt, less current maturities			17,332,290				17,555,830
Other long-term liabilities			-				398,750
Deferred tax liability			57,000				57,000
Total Liabilities			89,914,122				89,937,167
Redeemable Noncontrolling Interest			1,397,790				1,730,058
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, 22,455,100 shares issued and outstanding			22,455				22,455
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			367,350,818				367,029,421
Accumulated deficit			(46,546,185	)			(21,811,947	)
Total Stockholders' Equity			320,828,144				345,240,985
Total Liabilities, Redeemable Noncontrolling Interest, and Stockholders' Equity		$	412,140,056			$	436,908,210

 

		For the Three Months Ended
		March 31,
		2020				2019
Revenues:
Billboard rentals, net		$	7,215,766			$	6,780,390
Broadband services			267,251				-
Premiums earned			3,454,058				1,882,342
Insurance commissions			332,791				355,147
Investment and other income			140,314				92,846
Total Revenues			11,410,180				9,110,725
Costs and Expenses:
Cost of billboard revenues (exclusive of depreciation and amortization)			2,950,554				2,711,397
Cost of broadband revenues (exclusive of depreciation and amortization)			75,423				-
Cost of insurance revenues (exclusive of depreciation and amortization)			1,503,862				1,285,722
Employee costs			3,133,145				2,878,019
Professional fees			1,287,155				1,419,146
General and administrative			1,718,304				1,816,621
Amortization			951,821				2,848,552
Depreciation			831,510				843,283
Loss (gain) on disposition of assets			18,919				(17,721	)
Bad debt expense			84,697				80,878
Accretion			34,762				32,778
Total Costs and Expenses			12,590,152				13,898,675
Net Loss from Operations			(1,179,972	)			(4,787,950	)
Other Income (Expense):
Interest income			509,479				559,442
Dividend income			390,791				-
Equity in income of unconsolidated affiliates			465,665				94,753
Unrealized loss on securities			(24,745,513	)			(76,105	)
Gain on disposition of investments			26,268				120,382
Interest expense			(194,415	)			-
Net Loss Before Income Taxes			(24,727,697	)			(4,089,478	)
Income tax (provision) benefit			-				-
Net Loss			(24,727,697	)			(4,089,478	)
Noncontrolling interest in subsidiary (income) loss			(6,541	)			11,092
Net Loss Attributable to Common Stockholders		$	(24,734,238	)		$	(4,078,386	)
Basic and Diluted Net Loss per Share		$	(1.05	)		$	(0.18	)
Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding			23,510,660				22,186,219

 

		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
Beginning balance, December 31, 2018			21,029,324				1,055,560			$	21,029			$	1,056			$	335,518,323			$	(20,325,024	)		$	315,215,384
Stock issued for cash			154,003				-				154				-				3,864,547				-				3,864,701
Offering costs			-				-				-				-				(124,563	)			-				(124,563	)
Increase in redeemable noncontrolling interest			-				-				-				-				(136,483	)			-				(136,483	)
Net loss attributable to common stockholders, March 31, 2019			-				-				-				-				-				(4,078,386	)			(4,078,386	)
Ending balance, March 31, 2019			21,183,327				1,055,560			$	21,183			$	1,056			$	339,121,824			$	(24,403,410	)		$	314,740,653

		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
Beginning balance, December 31, 2019			22,455,100				1,055,560			$	22,455			$	1,056			$	367,029,421			$	(21,811,947	)		$	345,240,985
Offering costs			-				-				-				-				(2,252	)			-				(2,252	)
Decrease in redeemable noncontrolling interest due to redemption			-				-				-				-				323,649				-				323,649
Net loss attributable to common stockholders, March 31, 2020			-				-				-				-				-				(24,734,238	)			(24,734,238	)
Ending balance, March 31, 2020			22,455,100				1,055,560			$	22,455			$	1,056			$	367,350,818			$	(46,546,185	)		$	320,828,144

 

		For the Three Months Ended
		March 31,
		2020				2019
Cash Flows from Operating Activities:
Net Loss		$	(24,727,697	)		$	(4,089,478	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Amortization of right of use assets			1,002,379				882,275
Depreciation, amortization, and accretion			1,818,093				3,724,613
Loss (gain) on disposition of assets			18,919				(17,721	)
Bad debt expense			84,697				80,878
Equity in earnings of unconsolidated affiliates			(465,665	)			(94,753	)
Unrealized loss on securities			24,745,513				76,105
Gain on disposition of investments			(26,268	)			(120,382	)
Changes in operating assets and liabilities:
Accounts receivable			(726,680	)			(124,358	)
Interest receivable			163,775				(6,146	)
Prepaid expenses			246,685				(268,937	)
Distributions from unconsolidated affiliates			98,100				85,030
Deferred policy acquisition costs			77,606				(66,608	)
Other assets			99,729				14,001
Accounts payable and accrued expenses			(1,301,124	)			390,700
Lease liabilities			(1,037,464	)			(756,460	)
Unearned premiums			(532,148	)			499,389
Deferred revenue			350,666				29,159
Net Cash (Used in) Provided by Operating Activities			(110,884	)			237,307
Cash Flows from Investing Activities:
Payments on short-term payables for business acquisitions			(500	)			(1,064,990	)
Proceeds from disposition of assets			-				38,729
Business acquisitions, net of cash acquired			(14,310,533	)			-
Proceeds from redemption of preferred units			6,000,000				-
Investment in unconsolidated affiliate			(1,500,000	)			-
Purchase of non-controlling interest in subsidiary			(1,406,409	)			-
Purchases of equipment and related assets			(599,059	)			(883,538	)
Proceeds from sales of investments			265,921,609				257,823,370
Purchase of investments			(218,274,275	)			(267,185,142	)
Net Cash Provided by (Used in) Investing Activities			35,830,833				(11,271,571	)

		For the Three Months Ended
		March 31,
		2020				2019
Cash Flows from Financing Activities:
Proceeds from issuance of stock		$	-			$	3,864,701
Offering costs			(2,252	)			(124,563	)
Net Cash (Used in) Provided by Financing Activities			(2,252	)			3,740,138
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash			35,717,697				(7,294,126	)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period			16,372,032				18,143,839
Cash, Cash Equivalents, and Restricted Cash, End of Period		$	52,089,729			$	10,849,713
Interest Paid in Cash		$	194,415			$	-
Income Taxes Paid in Cash		$	-			$	-

		For the Three Months Ended
		March 31,
		2020				2019
Asset retirement obligations		$	-			$	1,294
Increase in redeemable noncontrolling interest of broadband subsidiary			1,397,790				-
(Decrease) increase in redeemable noncontrolling interest of insurance subsidiary			(323,649	)			136,483

 

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, Nevada, Virginia, West Virginia, and Wisconsin; (ii) our insurance business that specializes in surety bond underwriting and brokerage; (iii) our broadband business that provides high-speed broadband services to its customers, and (iv) our minority investments primarily in real estate services, homebuilding, and banking. Our billboard operations are conducted through our subsidiary, Link Media Holdings, LLC, our insurance operations are conducted through our subsidiary, General Indemnity Group, LLC, and our broadband operations are conducted through our subsidiary, FIF AireBeam LLC.

 

We completed an acquisition of an outdoor advertising business and entered the outdoor advertising industry on June 19, 2015. Since our initial acquisition, we have completed seventeen 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 insurance company. From July through November 2017 we completed the acquisition of two surety brokerage businesses and acquired a majority stake in a third surety brokerage business, thus expanding our operations in insurance. During the first quarter of 2020, we purchased the non-controlling interest in our third surety brokerage business from the minority owner. 

 

On March 10, 2020, we completed an acquisition of a rural broadband internet provider. 

 

In our opinion, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of unaudited consolidated financial position and the unaudited consolidated results of operations for 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 unaudited consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the years ended December 31, 2019 and 2018 as reported in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, which we refer to as the “SEC,” on March 13, 2020, 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 Properties, LLC which we refer to as “LMP”

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

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

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

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”

BOC DFH, LLC which we refer to as “BOC DFH”

Fiber is Fast, LLC which we refer to as "BOC FIF"

FIF AireBeam LLC, which we refer to as “AireBeam”

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

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

 

A majority of our billboard contracts had been accounted for under Financial Accounting Standards Board, which we refer to as the “FASB,” Accounting Standards Codification, which we refer to as “ASC,” 840. Contracts which began 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 are accounted for under ASC 606, Revenue from Contracts with Customers. The majority of our advertising space contracts do not meet the definition of a lease under ASC 842.

 

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 accounted for under ASC 606. Revenues are recognized at a point in time 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 being earned or when we have an unconditional right to consideration before satisfying 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 revenue is considered short-term and will be recognized in revenue within twelve months.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Revenue Recognition (Continued)

 

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 through third party carriers and account for commissions under ASC 606. Insurance commissions are earned from various insurance companies based upon our agency agreements with them. We arrange with various insurance companies for the provision of a surety bond for entities that require a surety bond. The insurance company sets the price of the bond. The contract with the insurance company is fulfilled when the bond is issued by the insurance agency on behalf of the insurance company. The insurance commissions are calculated based upon a stated percentage applied to the gross premiums on bonds. Commissions are recognized at a point in time, on a bond-by-bond basis as of the policy effective date and are generally nonrefundable.

 

Broadband Revenues

 

Broadband revenue is derived principally from internet services and is recognized on a straight-line basis over the term of the contract in the period the services are rendered.  Revenue received or receivable in advance of the delivery of services is included in deferred revenue.

 

Recent Accounting Pronouncements

 

In December 2019, the FASB issued guidance which simplifies the accounting for income taxes by removing certain exceptions to the general principles and improves consistent application of GAAP for other areas by clarifying and amending existing guidance. This guidance is effective January 1, 2021. We are evaluating the effect of adopting this new accounting guidance but do not expect adoption will have a material impact on our disclosures.

 

In January 2020, the FASB issued ASU No. 2020-01, Clarifying the Interactions between Topic 321, Investments—Equity Securities, Topic 323, Investments—Equity Method and Joint Ventures, and Topic 815, Derivatives and Hedging. This ASU clarifies that when accounting for certain equity securities, a company should consider observable transactions before applying or upon discontinuing the equity method of accounting for the purposes of applying the measurement alternative. This guidance is effective January 1, 2021, with early adoption permitted. We are evaluating the effect of adopting this new accounting guidance but do not expect adoption will have a material impact on our financial statements.

 

 

 

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:

 

 

 

 

NOTE 5.     PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

 

Depreciation expense for the three months ended March 31, 2020 and 2019 was $831,510 and $843,283, respectively. For the three months ended March 31, 2020 and 2019, we realized losses (gains) on the disposition of assets in the amount of $18,919 and ($17,721), respectively.

 

 

NOTE 6.     BUSINESS ACQUISITIONS

 

2020 Acquisitions

 

During the first quarter of 2020, we completed two acquisitions accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below.

 

Billboard Acquisition

 

On February 26, 2020, our subsidiary, LMO, acquired certain billboard assets in Nevada from Dean Martin Holding, LLC for a purchase price of $1,995,832. 

 

Broadband Acquisition

 

On March 10, 2020, FIF AireBeam, LLC, our wholly-owned subsidiary, acquired substantially all of the business assets of FibAire Communications, LLC, which we refer to as "FibAire", a broadband services provider, as well as other assets used in the business operations owned by entities related to FibAire. Under the terms of the asset purchase agreement, all purchased assets were sold on a debt-free basis to AireBeam. The total purchase price of $13,712,491 was paid 90% in cash and the remaining 10% of the purchase price was paid by issuing to FibAire 10% of the outstanding equity of AireBeam. $1,851,186 of the cash proceeds will be held in escrow for a minimum of one year from the closing to provide indemnification for certain representations and warranties made by FibAire in the asset purchase agreement. At any time, FibAire has the option, but not the obligation, to sell AireBeam its entire ownership interest in AireBeam. AireBeam would be obligated to purchase the units and pay for the purchase over a three-year period if FibAire elects to exercise this option. At any time after December 31, 2023, AireBeam has the option, but not the obligation, to purchase FibAire’s ownership interest in AireBeam, with payment due in full upon exercise of the option. The purchase price for the units under either of these put/call options is based upon a multiple of earnings before interest, taxes, depreciation, amortization, and certain other expenses.

 

We are in the process of obtaining a third-party valuation of the tangible and intangible assets, and therefore the initial allocation of the purchase price is subject to refinement. The purchase was recorded at fair value and preliminarily allocated as follows:

 

 

AireBeam's results of operations for the three month period ended March 31, 2020 are recognized from March 10, 2020, the date of acquisition, through March 31, 2020.  During this period, revenues and earnings were $267,251 and $65,410, respectively. Acquisition costs of $287,934 were expensed in professional fees during the same period.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

2019 Acquisitions

 

During the year ended December 31, 2019, we completed two 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.

 

Billboard Acquisitions

 

Image Outdoor Advertising, Inc.

 

On August 30, 2019, our subsidiary, LMSE, acquired from Image Outdoor Advertising, LLC, which we refer to as “Image”, 61 billboard structures and related assets located in West Virginia. The acquisition was completed for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The purchase price consisted of $6,915,501 in cash, net of adjustments, and 34,673 shares of our Class A common stock for a total purchase price of $7,625,604 and includes $398,750 that was held back by LMSE and will be disbursed, subject to any claims for indemnification, over an 18 month period. Due to the timing of the transaction, the initial accounting for the business combination is incomplete.  The provisional purchase price allocation is based on internal information derived from our previous acquisitions in the Southeastern United States. We are still in the process of obtaining and assessing documentation of the contracts for customer relationships and detailed reports for structures and permits.  Our preliminary purchase price allocation related to Image includes property, plant and equipment, intangibles and goodwill of $1,565,065, $3,145,000 and $3,045,538, respectively, as well as other net liabilities of $129,999. 

 

Alpha Displays, Inc.

 

On October 1, 2019, our subsidiary, LMO, acquired certain billboard assets in Missouri from Alpha Displays, Inc. The purchase price for the acquired assets was $1,337,685 and includes $380,546 that was held back by LMO and will be disbursed, subject to any claims for indemnification, over an 18 month period. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market in the Midwestern United States.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

Pro Forma Information

 

The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2019. For all of the business acquisitions depreciation and amortization have been included in the calculation of the pro forma information provided below, 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. 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 Image.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

NOTE 7.     INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

 

During the fourth quarter of 2019, we updated our analysis of economic lives of customer relationships and extended the amortization period to 10 years to better reflect the estimated economic lives of our billboard customers.

 

Future Amortization

 

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

 

 

Amortization expense for the three months ended March 31, 2020 and 2019 was $951,821 and $2,848,552, respectively.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 7.     INTANGIBLE ASSETS (Continued)

 

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, U.S. Treasury securities, and corporate bonds.  Certificates of deposit, U.S. Treasury securities and corporate bonds held by UCS are classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value. Other corporate bonds are classified as available for sale and reported at fair value. Because we have elected the fair value option for debt securities classified as available for sale, any unrealized holding gains and losses during the period are included in earnings. For the three months ended March 31, 2020, gains on redemptions of U.S. Treasury notes held to maturity were $2,284. For the three months ended March 31, 2020, unrealized losses on corporate bonds were $310,000. 

 

 

 

Marketable Equity Securities

 

Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Our marketable equity securities are held by UCS and Boston Omaha. Marketable equity securities as of March 31, 2020 and December 31, 2019 are as follows:

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

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

 

U.S. Treasury Securities Available for Sale

 

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 consolidated balance sheets. 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 March 31, 2020 and December 31, 2019 are as follows:

 

 

 

Long-term Investments

 

Long-term investments consist of certificates of deposit having maturity dates in excess of twelve months, U.S. Treasury securities, and certain equity investments. The certificates of deposit and U.S. Treasury securities have maturity dates ranging from 2021 through 2023. We have the intent and the ability to hold the certificates of deposit and U.S. Treasury securities 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:

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

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

 

Equity Investments

 

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

 

In late December 2017, we invested $10 million in non-voting common units of Dream Finders Holdings LLC, which we refer to as “DFH”, the parent company of Dream Finders Homes, LLC, a national home builder with operations in Florida, Texas, Georgia, Colorado and the greater northern Virginia and Maryland areas. During the first quarter of 2020, we obtained additional non-voting shares of DFH which increased our ownership in the company to approximately 5.6%. As a result, we began applying the equity method of accounting for our investment in DFH prospectively from January 1, 2020, the date we obtained the additional shares. 

 

In May 2019, our subsidiary BOC DFH, LLC invested an additional $12 million in DFH through the purchase of preferred units. DFH is required to pay to us a mandatory preferred return of at least 14% per annum on such preferred units and 25% of our preferred units are convertible, at our option, into non-voting common units after May 29, 2020 and the remaining preferred units are convertible, at our option, into non-voting common units after May 29, 2021. The mandatory 14% preferred return increases if the preferred units purchased are not redeemed or converted within one year of purchase. Also, we obtain additional beneficial conversion terms if the preferred units are not redeemed by May 29, 2021. On January 13, 2020, DFH redeemed $6,000,000 of the preferred units purchased in May 2019.

 

During January 2018, we exchanged our convertible note receivable from Breezeway Homes, Inc., which we refer to as “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. In addition, our investment provides us with a multi-year right to sell insurance and/or warranty products through Breezeway's software platform to its customers.

 

We reviewed our investments as of March 31, 2020 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 home building, real estate, real estate services, and asset management. Our interest in these affiliates ranges from 5.6% to 30%. Two of the investments in affiliates, Logic Real Estate Companies, LLC and 24^th Street Holding Company, LLC, having a combined carrying amount of $789,149 on March 31, 2020, are managed by an entity controlled by a member of our board of directors.

 

In March 2020, we invested $1,500,000 in 24^th Street Fund I, LLC. The fund is managed by 24^th Street Asset Management LLC and will focus on opportunities within secured lending and direct investments in commercial real estate.

 

The following table is a reconciliation of our investments in equity affiliates as presented in investments in unconsolidated affiliates on our consolidated balance sheets, together with combined summarized financial data related to the unconsolidated affiliates:

 

 

Combined summarized financial data for these affiliates is as follows:

 

 

 

 

NOTE 9.     FAIR VALUE

 

At March 31, 2020 and December 31, 2019, our financial instruments included cash, cash equivalents, restricted cash, receivables, marketable equity securities, certain investments, accounts payable, and long-term debt. The carrying value of cash, cash equivalents, restricted cash, receivables, and accounts payable approximates fair value due to the short-term nature of the instruments. As our long-term debt was issued during the third quarter of 2019, its interest rate is considered to approximate market rates at March 31, 2020.

 

 

Marketable equity securities, corporate bonds, and U.S. Treasury securities available for sale are reported at fair values. Substantially all of the fair value is determined using observed prices of publicly traded securities, level 1 in the fair value hierarchy. Fair values for equity investments in private companies are not readily available, but are estimated to approximate fair value. If our debt was measured at fair value within our Consolidated Balance Sheets, it would have been classified as level 2 in the fair value hierarchy.

 

 

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

 

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. From March 2018 through August 20, 2019, we sold through Cowen an aggregate of 2,141,452 shares of our Class A common stock under this “at the market” offering, resulting in gross proceeds to us of $49,999,625. For the period from January 1, through August 20, 2019, we sold through Cowen 942,223 shares of our Class A common stock under this at-the-market offering, resulting in gross proceeds to us of $22,753,943 and net proceeds of $22,059,015 after offering costs of $694,928.

 

On August 13, 2019, we entered into a second Sales Agreement with Cowen, relating to the sale of additional shares of our Class A common stock to be offered. In accordance with the terms of the second Sales Agreement, we may offer and sell from time to time up to $75,000,000 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. From August 21, 2019 through December 31, 2019, we sold through Cowen 448,880 shares of our Class A common stock under the second “at the market” offering, resulting in gross proceeds to us of $9,450,789 and net proceeds of $9,122,227, after offering costs of $328,562. During the first quarter of fiscal 2020, we did not sell any shares of our Class A common stock under the new "at the market" offering. Subsequent to March 31, 2020, we have sold under the new "at the market" offering 40,455 shares of our Class A common stock for gross proceeds of $669,751.

 

On March 18, 2020, our Board of Directors authorized and approved a share repurchase program for us to repurchase up to $20,000,000 worth of shares of our Class A common stock, which we refer to as the “Repurchase Program.” Under the Repurchase Program, we may repurchase shares, from time to time, in solicited or unsolicited transactions in the open market, privately-negotiated transactions, or transactions pursuant to a Rule 10b5-1 plan. The Repurchase Program does not obligate us to purchase any particular number of shares and will run through the earlier of June 30, 2021, or our decision that the Repurchase Program is no longer consistent with our short-term and long-term objectives. We have not repurchased any shares during fiscal year 2020.

 

Our Board of Directors also authorized us to enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, which we refer to as the “Exchange Act.” Adopting a trading plan that satisfies the conditions of Rule 10b5-1 allows a company to repurchase its shares at times when it might otherwise be prevented from doing so due to self-imposed trading blackout periods or pursuant to insider trading laws. Under any Rule 10b5-1 trading plan, our third-party broker, subject to Securities and Exchange Commission regulations regarding certain price, market, volume and timing constraints, would have authority to purchase our Class A common stock in accordance with the terms of the plan. We may from time to time, enter into Rule 10b5-1 trading plans to facilitate the repurchase of our Class A common shares pursuant to our Repurchase Program.

 

As of March 31, 2020, there were 104,772 outstanding warrants for our Class B common stock and 784 outstanding warrants for our Class A common stock. A summary of warrant activity for the three months ended March 31, 2020 is presented in the following table.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 11.     CAPITAL STOCK (Continued)

 

 

NOTE 12.    LONG-TERM DEBT

 

On August 12, 2019, Link Media Holdings, Inc., (“Link”), a wholly owned subsidiary of Boston Omaha Corporation (“BOC”), which owns and operates BOC’s billboard businesses, entered into a Credit Agreement (the “Credit Agreement”) with First National Bank of Omaha (the “Lender”) under which Link may borrow up to $40,000,000 (the “Credit Facility”). The Credit Agreement provides for an initial term loan (“Term Loan 1”), an incremental term loan (“Term Loan 2”) and a revolving line of credit. These loans are secured by all assets of Link and its operating subsidiaries, including a pledge of equity interests of each of Link’s subsidiaries. In addition, each of Link’s subsidiaries has joined as a guarantor to the obligations under the Credit Agreement. These loans are not guaranteed by BOC or any of BOC’s non-billboard businesses.

 

Principal amounts under each of Term Loan 1 and Term Loan 2 are payable in monthly installments according to either a 15-year or 25-year amortization schedule at Link’s option, subject to Link's satisfaction of certain conditions. For Term Loan 1, these payments are due commencing on the earlier of July 1, 2020 or the first day of the first calendar month following any draw down under Term Loan 2. For Term Loan 2, these principal payments are due commencing on the last day of the month following the closing of Term Loan 2. Both term loans are payable in full on August 12, 2026. Term Loan 1 has a fixed interest rate of 4.25% per annum with interest only payments due through July 1, 2020. Term Loan 2 has a loan availability in an amount not to exceed three times 2019 reported EBITDA reduced by the loan principal under Term Loan 1 and must be drawn before June 30, 2020. If utilized, Term Loan 2 will have a fixed rate of interest determined using the seven-year Treasury rate plus 195 basis points subject to a floor of 4.20% per annum.

 

The revolving line of credit loan facility has a $5,000,000 maximum availability, provided that the outstanding principal balance of Term Loan 1, Term Loan 2 and this revolving line of credit may not exceed $40,000,000. Interest payments are based on the 30-day LIBOR rate plus an applicable margin ranging between 2.00 and 2.50% dependent on Link’s consolidated leverage ratio. The revolving line of credit is due and payable on August 11, 2021.

 

Long-term debt included within our consolidated balance sheet as of March 31, 2020 consists of Term Loan 1 borrowings of $18,060,000, of which $727,710 is classified as current.  There were no amounts outstanding related to the revolving line of credit and Term Loan 2 as of March 31, 2020.  

 

During the term of the Credit Facility, Link is required to comply with the following financial covenants: A consolidated leverage ratio for any test period ending on the last day of any fiscal quarter of Link (a) beginning with the fiscal quarter ending December 31, 2019 of not greater than 3.50 to 1.00, (b) beginning with the fiscal quarter ending December 31, 2020 of not greater than 3.25 to 1.00, and (c) beginning with the fiscal quarter ending December 31, 2021 and thereafter, of not greater than 3.00 to 1.0; minimum consolidated fixed charge coverage ratio of not less than 1.15 to 1.00 measured quarterly, based on rolling four quarters, with testing to commence as of December 31, 2019 based on the December 31, 2019 audited financial statements. The Company was in compliance with these covenants as of March 31, 2020.

 

The Credit Agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the Lender may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans will automatically accelerate. 

 

 

NOTE 13.     LEASES

 

We enter into operating lease contracts primarily for land and office space. Arrangements are evaluated at inception to determine whether such arrangements contain a lease. Operating leases include land lease contracts and contracts for the use of office space. In accordance with the transition guidance of ASC 842, such arrangements are included in our balance sheet as of January 1, 2019.

 

Right of use assets, which we refer to as “ROU assets,” represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the respective lease term. Lease expense is recognized on a straight-line basis over the lease term.

 

Certain of our operating lease agreements include rental payments based on a percentage of revenue and others include rental payments adjusted periodically for inflationary changes. Percentage rent contracts, in which lease expense is calculated as a percentage of advertising revenue, and payments due to changes in inflationary adjustments are included within variable rent expense, which is accounted for separately from periodic straight-line lease expense.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 13.     LEASES (Continued)

 

Many operating lease contracts expire; however, we may continue to operate the leased assets after the rights and obligations of the lease agreements have expired. Such contracts, once expired, are considered to be leases and future expected payments are included in operating lease liabilities or ROU assets, using a 10 year extension period. Many of our leases entered into in connection with land provide options to extend the terms of the agreements. Generally, renewal periods are included in minimum lease payments when calculating the lease liabilities as, for most leases, we consider exercise of such options to be reasonably certain. As a result, optional terms and payments are included within the lease liability. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

The implicit rate within our lease agreements is generally not determinable. As such, we use the incremental borrowing rate, which we refer to as "IBR," to determine the present value of lease payments at the commencement of the lease. The IBR, as defined in ASC 842, is "the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment."

 

Operating Lease Cost

 

Operating lease cost for the three months ended March 31, 2020 is as follows:

 

 

Supplemental cash flow information related to operating leases is as follows:

 

 

Operating Lease Assets and Liabilities

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 13.      LEASES (Continued)

 

Maturity of Operating Lease Liabilities

 

 

As of March 31, 2020, our operating leases have a weighted-average remaining lease term of 17.15 years and a weighted-average discount rate of 4.85%.

 

 

NOTE 14.     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, and UCS. SSS clients are multi-state and UCS, SCS, 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, and UCS and to make additional business acquisitions in the insurance industry.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 14.     INDUSTRY SEGMENTS (Continued)

 

Link Media Holdings, LLC

 

LMH conducts our billboard rental operations. LMH advertisers are located in Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia, and Wisconsin.

 

 

 

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Three Months Ended March 31, 2020 and 2019

 

 

NOTE 14.     INDUSTRY SEGMENTS (Continued)

 

 

 

 

 

NOTE 15.     CUSTODIAL RISK

 

As of March 31, 2020, we had approximately $50,743,000 in excess of federally insured limits on deposit with financial institutions.

 

NOTE 16.     SUBSEQUENT EVENTS

 

Subsequent to March 31, 2020, we sold through Cowen an additional 40,455 shares of our Class A common stock, under the "at the market" Sales Agreement, resulting in net proceeds to us of $649,659 (See Note 11).