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 September 30, 2019

 

☐	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: 22,323,772 shares of Class A common stock and 1,055,560 shares of Class B common stock as of November 11, 2019.

 

 

 

 

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BOSTON OMAHA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED September 30, 2019

TABLE OF CONTENTS

 

	Page
Part I – Financial Information	4
Item 1. Consolidated Financial Statements (Unaudited).	4
Consolidated Balance Sheets – September 30, 2019 and December 31, 2018	4
Consolidated Statements of Operations – Three and Nine Months Ended September 30, 2019 and September 30, 2018	6
Consolidated Statements of Changes in Stockholders’ Equity – September 30, 2019 and September 30, 2018	7
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and September 30, 2018	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.	46
Item 4. Controls and Procedures.	46
Part II – Other Information	48
Item 1. Legal Proceedings.	48
Item 1A. Risk Factors.	48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	48
Item 3. Defaults Upon Senior Securities.	48
Item 4. Mine Safety Disclosures.	48
Item 5. Other Information.	48
Item 6. Exhibits.	48
Exhibit Index	49
Signatures	50

 

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
		September 30,				December 31,
		2019				2018
Current Assets:
Cash and cash equivalents		$	9,622,876			$	17,105,072
Restricted cash			405,335				1,038,767
Accounts receivable, net			5,377,949				4,464,444
Interest receivable			480,392				33,552
Short-term investments			6,371,919				6,251,064
Marketable equity securities			52,866,683				-
U. S. Treasury securities available for sale			75,095,227				86,845,386
Funds held as collateral assets			1,952,270				-
Prepaid expenses			1,488,461				2,823,654
Total Current Assets			153,661,112				118,561,939
Property and Equipment, net			36,737,197				41,702,155
Other Assets:
Goodwill			105,757,891				98,685,795
Intangible assets, net			33,096,780				37,032,534
Investments			43,325,220				32,381,686
Investments in unconsolidated affiliates			614,593				568,713
Funds held as collateral assets			-				973,674
Deferred policy acquisition costs			2,430,004				1,412,248
Right of use assets			50,251,439				-
Other			240,243				875,777
Total Other Assets			235,716,170				171,930,427
Total Assets		$	426,114,479			$	332,194,521

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LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY
		September 30,				December 31,
		2019				2018
Current Liabilities:
Accounts payable and accrued expenses		$	4,880,530			$	3,550,856
Short-term payables for business acquisitions			35,620				2,000,610
Lease liabilities			3,520,592				-
Funds held as collateral			1,952,270				973,674
Unearned premiums			8,664,521				4,935,310
Current maturities of long-term debt			287,139				-
Deferred revenue			1,317,493				975,690
Total Current Liabilities			20,658,165				12,436,140
Long-term Liabilities:
Asset retirement obligations			1,992,799				1,824,419
Lease liabilities			45,177,722				-
Long-term debt, less current maturities			17,772,861				-
Other long-term liabilities			398,750				1,316,000
Deferred tax liability			57,000				57,000
Total Liabilities			86,057,297				15,633,559
Redeemable Noncontrolling Interest			1,864,861				1,345,578
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, 22,316,372 and 21,029,324 shares issued and outstanding, respectively			22,316				21,029
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			364,051,708				335,518,323
Accumulated deficit			(25,882,759	)			(20,325,024	)
Total Stockholders' Equity			338,192,321				315,215,384
Total Liabilities, Redeemable Noncontrolling Interest, and Stockholders' Equity		$	426,114,479			$	332,194,521

 

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		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2019				2018				2019				2018
Revenues:
Billboard rentals, net		$	7,182,884			$	3,753,795			$	21,113,266			$	7,003,254
Premiums earned			3,065,490				814,944				7,435,389				1,799,293
Insurance commissions			442,824				793,934				1,200,927				2,310,802
Investment and other income			131,610				30,845				323,512				92,872
Total Revenues			10,822,808				5,393,518				30,073,094				11,206,221
Costs and Expenses:
Cost of billboard revenues (exclusive of depreciation and amortization)			2,857,680				1,432,787				8,333,967				2,998,408
Cost of insurance revenues (exclusive of depreciation and amortization)			2,025,320				646,231				4,742,025				1,123,767
Employee costs			3,109,483				2,029,254				8,953,935				5,735,278
Professional fees			944,862				955,042				3,005,543				2,375,417
General and administrative			1,445,859				1,121,930				4,933,960				2,822,145
Amortization			3,656,612				1,608,708				9,361,736				3,059,948
Depreciation			463,410				469,163				2,167,815				1,104,570
Loss on disposition of assets			2,760				-				28,293				81,857
Bad debt expense			72,767				32,023				226,422				46,538
Accretion			33,154				3,436				99,086				9,431
Total Costs and Expenses			14,611,907				8,298,574				41,852,782				19,357,359
Net Loss from Operations			(3,789,099	)			(2,905,056	)			(11,779,688	)			(8,151,138	)
Other Income (Expense):
Interest income			1,266,731				459,821				2,431,923				1,551,767
Dividend income			315,897				-				315,897				-
Equity in income of unconsolidated affiliates			159,564				117,395				323,333				502,486
Unrealized gain on securities			2,813,544				13,419				2,864,060				126,722
Gain on disposition of investments			7,565				389,947				432,409				335,214
Interest expense			(106,597	)			-				(106,597	)			(1,804	)
Net Income (Loss) Before Income Taxes			667,605				(1,924,474	)			(5,518,663	)			(5,636,753	)
Income tax (provision) benefit			-				-				-				-
Net Income (Loss)			667,605				(1,924,474	)			(5,518,663	)			(5,636,753	)
Noncontrolling interest in subsidiary (income) loss			(32,606	)			(6,567	)			(39,072	)			38,233
Net Income (Loss) Attributable to Common Stockholders		$	634,999			$	(1,931,041	)		$	(5,557,735	)		$	(5,598,520	)
Basic and Diluted Net Income (Loss) per Share		$	0.03			$	(0.09	)		$	(0.25	)		$	(0.29	)
Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding			22,798,738				22,029,790				22,563,527				19,212,464

 

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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
Beginning balance, 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	)
Balance March 31, 2018			17,128,847				1,055,560				17,129				1,056				245,800,367				(13,280,469	)			232,538,083
Stock issued for cash			628,159				-				628				-				14,516,670				-				14,517,298
Stock issued to related parties for cash			3,137,768				-				3,138				-				73,106,862				-				73,110,000
Offering costs			-				-				-				-				(515,988	)			-				(515,988	)
Net loss attributable to common stockholders, June 30, 2018			-				-				-				-				-				(1,598,097	)			(1,598,097	)
Balance June 30, 2018			20,894,774				1,055,560				20,895				1,056				332,907,911				(14,878,566	)			318,051,296
Stock issued for cash			28,080				-				28				-				609,089				-				609,117
Stock issued for business acquisition			85,170				-				85				-				1,699,908				-				1,699,993
Offering costs			-				-				-				-				(33,106	)			-				(33,106	)
Net loss attributable to common stockholders, September 30, 2018			-				-				-				-				-				(1,931,041	)			(1,931,041	)
Balance, September 30, 2018			21,008,024				1,055,560			$	21,008			$	1,056			$	335,183,802			$	(16,809,607	)		$	318,396,259

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		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	)
Balance March 31, 2019			21,183,327				1,055,560				21,183				1,056				339,121,824				(24,403,410	)			314,740,653
Stock issued for cash			435,994				-				436				-				10,741,720				-				10,742,156
Offering costs			-				-				-				-				(325,952	)			-				(325,952	)
Increase in redeemable noncontrolling interest			-				-				-				-				(134,605	)			-				(134,605	)
Net loss attributable to common stockholders, June 30, 2019			-				-				-				-				-				(2,114,348	)			(2,114,348	)
Balance June 30, 2019			21,619,321				1,055,560				21,619				1,056				349,402,987				(26,517,758	)			322,907,904
Stock issued for cash			662,378				-				662				-				14,622,003				-				14,622,665
Stock issued for business acquisition			34,673				-				35				-				710,068				-				710,103
Offering costs			-				-				-				-				(474,227	)			-				(474,227	)
Increase in redeemable noncontrolling interest			-				-				-				-				(209,123	)			-				(209,123	)
Net income attributable to common stockholders, September 30, 2019			-				-				-				-				-				634,999				634,999
Balance September 30, 2019			22,316,372				1,055,560			$	22,316			$	1,056			$	364,051,708			$	(25,882,759	)		$	338,192,321

 

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		For the Nine Months Ended
		September 30,
		2019				2018
Cash Flows from Operating Activities:
Net Loss		$	(5,518,663	)		$	(5,636,753	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Amortization of right of use assets			2,674,760				-
Depreciation, amortization, and accretion			11,628,637				4,173,949
Loss on disposition of assets			28,293				81,857
Bad debt expense			226,422				46,538
Equity in earnings of unconsolidated affiliates			(323,333	)			(502,486	)
Unrealized gain on securities			(2,864,060	)			(126,722	)
(Gain) loss on disposition of investments			(432,409	)			(335,214	)
Changes in operating assets and liabilities:
Accounts receivable			(1,139,927	)			(1,696,841	)
Interest receivable			(446,840	)			(276,208	)
Prepaid expenses			(957,151	)			(607,228	)
Distributions from unconsolidated affiliates			503,431				668,788
Deferred policy acquisition costs			(1,017,756	)			(723,685	)
Other assets			34,989				(16,930	)
Accounts payable and accrued expenses			1,217,448				287,666
Lease liabilities			(2,649,400	)			-
Unearned premiums			3,729,211				2,634,005
Deferred revenue			341,803				276,726
Net Cash Provided by (Used in) Operating Activities			5,035,455				(1,752,538	)
Cash Flows from Investing Activities:
Payments on short-term payables for business acquisitions			(1,964,990	)			(427,500	)
Proceeds from disposition of assets			38,729				30,000
Business acquisitions, net of cash acquired			(6,516,751	)			(135,023,950	)
Purchase of preferred units			(12,000,000	)			-
Acquisition of investment in unconsolidated affiliate			(225,978	)			(40,399	)
Loan to investee			-				(2,116,972	)
Proceeds from loan to investee			-				2,116,972
Purchases of equipment and related assets			(2,226,229	)			(2,676,175	)
Proceeds from sales of investments			876,095,912				644,043,048
Purchase of investments			(912,716,556	)			(680,934,857	)
Net Cash Used in Investing Activities			(59,515,863	)			(175,029,833	)

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		For the Nine Months Ended
		September 30,
		2019				2018
Cash Flows from Financing Activities:
Proceeds from long-term debt			18,060,000				-
Proceeds from issuance of stock		$	29,229,522			$	26,696,400
Proceeds from issuance of stock to related parties			-				150,000,000
Offering costs			(924,742	)			(1,555,300	)
Net Cash Provided by Financing Activities			46,364,780				175,141,100
Net Decrease in Cash, Cash Equivalents, and Restricted Cash			(8,115,628	)			(1,641,271	)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period			18,143,839				7,230,570
Cash, Cash Equivalents, and Restricted Cash, End of Period		$	10,028,211			$	5,589,299
Interest Paid in Cash		$	106,597			$	1,804
Income Taxes Paid in Cash		$	-			$	-

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		For the Nine Months Ended
		September 30,
		2019				2018
Asset retirement obligations		$	69,294			$	179,916
Payable as consideration for business acquisition			398,750				2,229,467
Class A common stock issued for business acquisition			710,103				1,699,993
Note receivable exchanged for preferred stock			-				104,019
Increase in redeemable noncontrolling interest			480,211				-

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NOTE 1.     ORGANIZATION AND BACKGROUND

 

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

 

We completed an acquisition of an outdoor advertising business and entered the outdoor advertising industry on June 19, 2015. During 2015, 2016, 2017, 2018, and through September 30, 2019, we completed fifteen 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.

 

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, 2018 and 2017 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 18, 2019, have been omitted.

 

NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Consolidation Policy

 

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

 

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

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

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

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

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

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

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

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

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

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

General Indemnity Direct Insurance Services, LLC which we refer to as “GIDIS”

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”

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

 

NOTE 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

Consolidation Policy (Continued)

 

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

 

Reclassifications

 

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financial statements.

 

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. Production services revenue recognized for the nine months ended September 30, 2019 and 2018 was $1,015,392 and $301,627, respectively.

 

Deferred Revenues

 

We record deferred revenues when cash payments are received in advance of being earned. The term between invoicing and when a payment is due is generally 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.

 

Barter Transactions

 

We engage in barter transactions wherein we trade advertising space for goods and services. We recognize revenues and expenses from barter transactions at fair value, which is determined based on our own historical practice of receiving cash for similar advertising space from buyers unrelated to the party in the barter transaction. Revenues and expenses for barter transactions are generally insignificant.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

 

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.

 

Practical Expedients and Exemptions

 

In connection with our transition to ASC 606 from ASC 840, we utilized the following practical expedients and exemptions from ASC 606. We 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. We have used the practical expedient and not adjusted the amount of consideration for the effects of a significant financing component for deferred revenues where the period between our performance and our customers’ payments is 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 February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842), Leases, which we refer to as “Topic 842.” Topic 842 supersedes the lease requirements in ASC Topic 840, Leases, which we refer to as “Topic 840.” Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating.

 

We adopted Topic 842 effective January 1, 2019, using the modified retrospective transition approach. Additionally, we adopted the package of practical expedients, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs. We also adopted the use of hindsight and the practical expedient pertaining to land easements. The most significant effects of Topic 842 were the recognition of $49,066,289 of operating lease assets and liabilities and the de-recognition of $811,709 of favorable lease assets, $1,945,820 of prepaid land lease assets and $1,316,000 of accrued rent liabilities. We applied Topic 842 to all leases as of January 1, 2019 with comparative periods continuing to be reported under Topic 840. In the adoption of Topic 842, we carried forward the assessment from Topic 840 of whether our contracts contain or are leases, the classification of our leases, and remaining lease terms. We do not have any finance leases. The standard does not have a significant effect on our consolidated results of operations or cash flows. Note 13 contains further details.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

 

NOTE 3.     RESTRICTED CASH

 

Restricted cash consists of the following:

 

 

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

 

 

 

NOTE 4.     ACCOUNTS RECEIVABLE

 

Accounts receivable consist of the following:

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

NOTE 5.     PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

 

 

Depreciation expenses for the nine months ended September 30, 2019 and 2018 was $2,167,815 and $1,104,570, respectively. For the nine months ended September 30, 2019 and 2018, we realized losses on the disposition of assets in the amount of $28,293 and $81,857, respectively.

 

 

NOTE 6.     BUSINESS ACQUISITIONS

 

2019 Acquisitions

 

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 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.   

 

2018 Acquisitions

 

During the year ended December 31, 2018, we completed three acquisitions of billboards and related assets. These acquisitions were accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below.

 

Billboard Acquisitions

 

Tammy Lynn Outdoor, LLC

 

On July 31, 2018, our subsidiary, LMSE, acquired from Tammy Lynn Outdoor, LLC, which we refer to as “Tammy Lynn,” billboard structures and related assets primarily located in West Virginia with additional acquired assets located in 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 $14,763,261 in cash, net of adjustments, and 85,170 shares of our Class A common stock. There were no adjustments made to the purchase price allocation recorded as of December 31, 2018.  Finite-lived intangible assets consist of customer relationships, permits, favorable leases, and a five year noncompetition agreement. We amortize the noncompetition agreement according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information.

 

For the three and nine month periods ended September 30, 2018, revenues and earnings recognized from the date of acquisition in our consolidated statement of operations were $340,006 and ($54,969), respectively. Acquisition costs of $113,679 were expensed in professional fees during the same period.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

 

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

2018 Acquisitions (Continued)

 

Billboard Acquisitions (Continued)

 

Key Outdoor, Inc.

 

On August 22, 2018, our subsidiary, LMM acquired from Key Outdoor, Inc., which we refer to as “Key,” over 700 billboard structures and related assets. The billboards and related assets are located in Illinois, Iowa and Missouri.

 

The purchase price for the acquired assets was $38,000,000, subject to certain post-closing adjustments, which totaled $233,894. A portion of the purchase price equal to $1,900,000 was held back by LMM to be disbursed, subject to any claims for indemnification, over a 12 month period. Another $329,467 was held back as required consent holdback. Both holdbacks, net of 2018 payments, are included in the caption “Short-term payables for business acquisitions” on our consolidated balance sheet as of December 31, 2018. Each of Key and Angela K. Dahl and Robert A. Dahl, Key's principals, entered into five year noncompetition and nonsolicitation agreements in connection with the acquisition. Total cash paid at closing was $36,004,427. During the nine months ended  September 30, 2019, we made payments of $1,964,990 on the short-term payable for business acquisitions.

 

During the third quarter of 2019, we completed our review of customer relationships, structures, permits, and lease contracts which allowed us to finalize the preliminary purchase price allocation. Finite-lived intangible assets consist of customer relationships, permits, and five year noncompetition and nonsolicitation agreements. We amortize the noncompetition and nonsolicitation agreements according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information.

 

The final purchase price allocation, including current measurement-period adjustments, was recorded as follows:

 

 

Amortization expense for the three and nine month periods ended September 30, 2019, is increased by $335,797 to reflect the effect on earnings as a result of the above adjustments to the provisional amounts recognized.  Depreciation expense for the same periods is decreased by $193,269 as a result of the adjustments.

 

For the three and nine month periods ended September 30, 2018, revenues and earnings recognized from the date of acquisition in our consolidated statement of operations were $555,992 and ($6,756), respectively. Acquisition costs of $121,469 were expensed in professional fees during the same period.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

 

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

2018 Acquisitions (Continued)

 

Billboard Acquisitions (Continued)

 

Waitt Outdoor, LLC

 

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

 

The purchase price for the acquired assets was $82,000,000, subject to certain post-closing adjustments, which totaled $2,031,262, resulting in a total purchase price of $84,031,262. Cash paid at closing was $84,031,262 of which $4,102,500 was initially held in escrow, subject to any claims for indemnification, and subsequently released to Waitt during the third quarter of 2019. Waitt, WaittCorp Investments, LLC, and Mr. Michael J. Delich, the principal of Waitt, have also entered into five year noncompetition and nonsolicitation agreements in connection with the acquisition.

 

During the third quarter of 2019, we completed our review of customer relationships, structures, permits, easements and lease contracts which allowed us to finalize the preliminary purchase price allocation. Finite-lived intangible assets consist of customer relationships, permits, and noncompetition and nonsolicitation agreements. We amortize the noncompetition and nonsolicitation agreements according to the terms of the asset purchase agreement. For other finite-lived assets, amortization is computed over the average period of expected benefit determined from internal information. We also acquired several easements. The easements are permanent easements which grant us the right to use real property not owned by us. Since the easements are perpetual, they are not amortized.

 

The final purchase price allocation, including current measurement-period adjustments, was recorded as follows:

 

 

Amortization expense for the three and nine month periods ended September 30, 2019, is increased by $459,369 to reflect the effect on earnings as a result of the above adjustments to the provisional amounts recognized.  Depreciation expense for the same periods is decreased by $253,033 as a result of the adjustments.

 

For the three and nine month periods ended September 30, 2018, revenues and earnings recognized from the date of acquisition in our consolidated statement of operations were $1,117,509 and $32,312, respectively. Acquisition costs of $140,165 were expensed in professional fees during the same period.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

Pro Forma Information

 

The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2018. 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 Tammy Lynn and Image.

 

 

NOTE 7.     INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

 

During the nine months ended September 30, 2019, $623,050 of easements were reclassified from other assets to intangible assets within the consolidated balance sheet. 

 

 

Amortization expense for the nine months ended September 30, 2019 and 2018 was $9,361,736 and $3,059,948, respectively.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

 

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, U.S. Treasury securities, and a corporate bond and are primarily held by UCS .  All short-term investments are classified as held to maturity and mature in less than twelve months. The certificates of deposit are carried at cost. For the nine months ended September 30, 2019, gains on redemptions of U.S. Treasury notes held to maturity were $1,935.

 

 

 

Marketable Equity Securities

 

During the nine months ended September 30, 2019, we began investing in 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 September 30, 2019 are as follows:

 

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018

 

 

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 balance sheet. Because we have elected the fair value option for these securities, unrealized holding gains and losses during the period are included in earnings. Interest income is recognized at the coupon rate. Securities available for sale 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 2020 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 Nine Months Ended September 30, 2019 and 2018

 

 

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 “CB&T,” the privately held parent company of Crescent Bank & Trust. Our investment represents 14.99% of CB&T’s outstanding common stock. CB&T is a closely held corporation, whose majority ownership rests with one family.

 

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. Our non-voting common units investment represents an approximately 5% ownership stake in the company. 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.

 

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 September 30, 2019 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, real estate services, and asset management. Our interest in these affiliates ranges from 7.15% 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 $614,593 on September 30, 2019, are managed by a member of our board of directors.

 

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

 

 

The loss on investment in affiliate is related to the wind-down of TAG SW 1, LLC, which occurred during 2018.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

 

For the Nine Months Ended September 30, 2019 and 2018