See accompanying notes to the unaudited consolidated financial statements.
See accompanying notes to the unaudited consolidated financial statements.
See accompanying notes to the unaudited consolidated financial statements.
See accompanying notes to the unaudited consolidated financial statements.
See accompanying notes to the unaudited consolidated financial statements.
See accompanying notes to the unaudited consolidated financial statements.
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
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, Arkansas, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Oklahoma, 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, Fiber is Fast, LLC.
We completed an acquisition of an outdoor advertising business and entered the outdoor advertising industry on June 19, 2015. From 2015 through June 2022, we have completed more than twenty 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 2017 through 2021, we completed four additional acquisitions of surety brokerage businesses.
On March 10, 2020, we completed the acquisition of a rural broadband internet provider located in Arizona. On December 29, 2020, we completed the acquisition of a second broadband internet provider located in Utah. On April 1, 2022, we completed the acquisition of our third broadband internet provider located in Utah.
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, 2021 and 2020 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 28, 2022, have been omitted.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The financial statements of Boston Omaha Corporation include the accounts of the Company and our consolidated subsidiaries, which are comprised of voting interest entities in which we have a controlling financial interest and variable interest entities in which we are the primary beneficiary in accordance with ASC 810, Consolidation. The equity attributable to non-controlling interests in subsidiaries is shown separately in the accompanying consolidated balance sheets. All significant intercompany profits, losses, transactions and balances have been eliminated in consolidation.
Our consolidated subsidiaries at September 30, 2022 include:
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”
Link Billboards Oklahoma, LLC which we refer to as "LBO"
General Indemnity Group, LLC which we refer to as “GIG”
American Contracting Services, Inc. which we refer to as "ACS"
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”
BOAM BFR LLC which we refer to as "BOAM BFR"
BOC Business Services LLC which we refer to as "BBS"
BOC DFH, LLC which we refer to as “BOC DFH”
BOC OPS LLC which we refer to as "BOC OPS"
BOC Yellowstone LLC which we refer to as "BOC Yellowstone"
BOC Yellowstone II LLC which we refer to as “BOC Yellowstone II”
BOC YAC Funding LLC which we refer to as "BOC YAC"
Fiber is Fast, LLC which we refer to as "FIF"
FIF AireBeam LLC which we refer to as “AireBeam”
Fiber Fast Homes, LLC which we refer to as "FFH"
FIF Utah LLC which we refer to as “FIF Utah”
FIF St George, LLC which we refer to as "FIF St George"
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
The majority of our advertising revenues are derived from contracts for advertising space on billboard structures and are accounted for under Financial Accounting Standards Board, which we refer to as the “FASB,” Accounting Standards Codification, which we refer to as “ASC,” 606, Revenue from Contracts with Customers.
Premium revenues derived from our insurance operations are subject to ASC 944, Financial Services – Insurance.
Revenue Recognition
Billboard Rentals
We generate revenue from outdoor advertising through the leasing of advertising space on billboards. The terms of the contracts 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, Revenue from Contracts with Customers. 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.
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 of $934,531 and $353,813 for the nine months ended September 30, 2022 and 2021, respectively, are included within “Premiums earned” in our consolidated statements of operations.
Commissions
We generate revenue from commissions on surety bond sales 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.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss and Loss Adjustment Expenses
Unpaid losses and loss adjustment expenses represent estimates for the ultimate cost of unpaid reported and unreported claims incurred and related expenses. Estimates for losses and loss adjustment expenses are based on past experience of investigating and adjusting claims and consideration of the level of premiums written during the current and prior year. Since the reserves are based on estimates, the ultimate liability may differ from the estimated reserve. The effects of changes in estimated reserves are included within cost of insurance revenues in our results of operations in the period in which the estimates are updated. The reserves are included within accounts payable and accrued expenses in our consolidated balance sheets.
Variable Interest Entities (VIEs)
We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. Our determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. In evaluating whether we are the primary beneficiary, we evaluate our direct and indirect economic interests in the entity. A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in the VIE. Determining which reporting entity, if any, has a controlling financial interest in a VIE is primarily a qualitative approach focused on identifying which reporting entity has both: (i) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.
We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct operating decisions and activities. In addition, we consider the rights of other investors to participate in those decisions. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion continually. We consolidate any VIE of which we are the primary beneficiary.
Investments in Unconsolidated Entities
We account for investments in less than 50% owned and more than 20% owned entities using the equity method of accounting. In accordance with ASC 323-30, we account for investments in limited partnerships and limited liability companies using the equity method of accounting when its investment is more than minimal (greater than 3% to 5%). Our share of income (loss) of such entities is recorded as a single amount as equity in income (loss) of unconsolidated affiliates. Dividends, if any, are recorded as a reduction of the investment.
We monitor our equity method investments for factors indicating other-than-temporary impairment. We consider several factors when evaluating our investments, including, but not limited to, (i) the period of time for which the fair value has been less than the carrying value, (ii) operating and financial performance of the investee, (iii) the investee’s future business plans and projections, (iv) discussions with their management, and (v) our ability and intent to hold the investment until it recovers in value.
Income Taxes
We compute our year-to-date provision for income taxes by applying the estimated annual effective tax rate to year-to-date pre-tax income or loss and adjust the provision for discrete tax items recorded in the period.
The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards and credits. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized. During the year ended December 31, 2021, we reversed the overall valuation allowance previously recorded against our net deferred tax asset and recorded a valuation allowance against certain deferred tax assets that we have determined are not more-likely-than-not realizable.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, annual use of our net operating losses may be limited if it is determined that an ownership shift has occurred. An ownership shift is generally defined as a cumulative change in equity ownership by ‘‘5% shareholders’’ that exceeds 50 percentage points over a rolling three-year period. At this time, a Section 382 study has not been performed to determine if such an ownership shift has occurred.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 3. CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
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.
|
|
September 30, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
38,527,045 |
|
|
$ |
72,508,528 |
|
Funds held as collateral |
|
|
22,190,724 |
|
|
|
9,185,872 |
|
|
|
|
|
|
|
|
|
|
Total Cash, Cash Equivalents, and Restricted Cash as Presented in the Consolidated Statement of Cash Flows |
|
$ |
60,717,769 |
|
|
$ |
81,694,400 |
|
NOTE 4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
| | September 30, | | | December 31, | |
| | 2022 | | | 2021 | |
| | | | | | | | |
Trade accounts | | $ | 5,026,184 | | | $ | 3,688,116 | |
Premiums | | | 1,514,522 | | | | 901,769 | |
Allowance for doubtful accounts | | | (137,885 | ) | | | (121,022 | ) |
| | | | | | | | |
Total Accounts Receivable, net | | $ | 6,402,821 | | | $ | 4,468,863 | |
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
September 30, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Structures and displays |
|
$ |
58,817,118 |
|
|
$ |
56,087,039 |
|
Fiber, towers, and broadband equipment |
|
|
43,038,171 |
|
|
|
20,637,161 |
|
Land |
|
|
14,167,967 |
|
|
|
7,035,274 |
|
Vehicles and equipment |
|
|
6,002,942 |
|
|
|
4,419,615 |
|
Office furniture and equipment |
|
|
4,777,704 |
|
|
|
4,006,032 |
|
Accumulated depreciation |
|
|
(21,738,455 |
) |
|
|
(15,730,095 |
) |
|
|
|
|
|
|
|
|
|
Total Property and Equipment, net |
|
$ |
105,065,447 |
|
|
$ |
76,455,026 |
|
Depreciation expense for the nine months ended September 30, 2022 and 2021 was $6,165,584 and $4,066,451, respectively.
NOTE 6. BUSINESS ACQUISITIONS
2022 Acquisitions
InfoWest & Go Fiber
On April 1, 2022, FIF St George, LLC, our wholly-owned subsidiary, acquired substantially all of the business assets of InfoWest, Inc. (“InfoWest”) and Go Fiber LLC (“Go Fiber”), who are fiber and fixed wireless internet service providers located in St. George, Utah. The InfoWest and Go Fiber businesses together provide high-speed internet services to over 20,000 customers throughout Southern and Central Utah, Northern Arizona and Moapa Valley, Nevada.
Under the terms of the Agreement, FIF St George, LLC will assume only certain liabilities of InfoWest and Go Fiber. The total purchase price of $48,573,149 was paid 80% in cash, and the remaining 20% of the purchase price was paid by issuing to InfoWest and Go Fiber 20% of the outstanding equity of FIF St George, LLC. A portion of the cash purchase price will be held in escrow to provide a source of indemnification for any breaches of the representations and warranties, covenants and other obligations of InfoWest and Go Fiber under the Agreement. At any time, InfoWest and Go Fiber have the option, but not the obligation, to sell FIF St George, LLC its entire ownership interest in FIF St George, LLC. FIF St George, LLC would be obligated to purchase the units and pay for the purchase over a three-year period if InfoWest and Go Fiber elect to exercise this option. Subject to the occurrence of certain future events, FIF St George, LLC has the option, but not the obligation, to purchase InfoWest and Go Fiber’s ownership interest in FIF St George, LLC, 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.
Due to the timing of the transaction, the initial accounting for the business combination is incomplete. In order to develop our preliminary fair values, we utilized asset information received from InfoWest and Go Fiber and fair value allocation benchmarks from similar completed transactions. We are currently in the process of assessing InfoWest and Go Fiber’s documentation of contracts related to customer relationships and operating leases. Additionally, we are in the process of obtaining a final third-party valuation of InfoWest’s tangible and intangible assets, and therefore the initial allocation of the purchase price is subject to refinement.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
The following is a summary of the preliminary allocation of the purchase price, which includes the fair value allocation of the assets acquired and liabilities assumed:
| | InfoWest & Go Fiber | |
Assets Acquired | | | | |
Property, plant and equipment | | $ | 5,983,410 | |
Trade names and trademarks | | | 7,300,000 | |
Customer relationships | | | 16,900,000 | |
Goodwill | | | 18,071,004 | |
Right of use assets | | | 3,155,434 | |
Other | | | 358,614 | |
| | | | |
Total Assets Acquired | | | 51,768,462 | |
| | | | |
Liabilities Assumed | | | | |
Lease liabilities | | | 3,149,194 | |
Other | | | 46,119 | |
| | | | |
Total Liabilities Assumed | | | 3,195,313 | |
| | | | |
Total | | $ | 48,573,149 | |
InfoWest and Go Fiber’s results of operations are recognized from April 1, 2022, the date of acquisition, through September 30, 2022. During this period, revenues and earnings were $8,013,321 and $1,173,944, respectively. Acquisition costs, incurred primarily in the fourth quarter of 2021 and the first quarter of 2022, of $746,159 were expensed in professional fees. The intangible assets include customer relationships and trade names and trademarks which have useful lives of ten years and twenty years, respectively.
2021 Acquisitions
During the year ended December 31, 2021, we completed three acquisitions of outdoor advertising businesses and related assets as well as the acquisition of a surety brokerage company. The outdoor advertising businesses were acquired for the purpose of expanding our presence in the outdoor advertising market in the Midwestern United States. The membership units of the surety brokerage company were acquired for the purpose of expanding our presence in the surety and fidelity insurance business in the United States. These acquisitions were accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below.
Insurance Acquisition
American Contracting Services
On April 1, 2021, our subsidiary, GIG, acquired 100% of the stock of American Contracting Services, Inc., which we refer to as "ACS," a surety brokerage company located in Ohio, for a purchase price of $3,455,000. The total purchase price consists of $2,225,000 of cash, ten percent of which was held back by GIG and will be disbursed, subject to any claims for indemnification, over an 18-month period, and $1,230,000 in contingent consideration. The fair value of the contingent consideration, classified in other current liabilities in the consolidated balance sheet, is dependent on the probability of ACS achieving certain financial performance targets. The contingent consideration ranges between zero and $1,275,000 and is payable twenty-four months following the closing date. Our purchase price allocation related to ACS includes property, plant and equipment, intangibles, and goodwill of $87,780, $970,000 and $2,605,844, respectively, as well as other net liabilities of $208,624. The intangible assets include customer relationships and trade names and trademarks, each of which have a fifteen year useful life.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 6. BUSINESS ACQUISITIONS (Continued)
2021 Acquisitions
Outdoor Advertising Acquisitions
Thomas Outdoor
On January 26, 2021, our subsidiary, LMO, acquired from Thomas Outdoor Advertising, Inc., which we refer to as “Thomas,” 238 billboard structures and related assets located in Kansas for a purchase price of $6,102,508 paid in cash. Our purchase price allocation related to Thomas includes property, plant and equipment, intangibles, and goodwill of $1,706,708, $1,551,000 and $2,618,431, respectively, as well as other net assets of $226,369. The intangible assets include customer relationships and permits which have useful lives of fifteen years and ten years, respectively.
Keleher
On November 19, 2021, Link Billboards Oklahoma, LLC, our wholly-owned subsidiary, which we refer to as "LBO", purchased the outdoor advertising assets of Keleher Outdoor Advertising, Inc. and Keleher Enterprises, Inc. (together "Keleher"), based in Bartlesville, OK for a purchase price of $12,220,000. Keleher was founded in 1975 and operates over 600 billboard faces in Oklahoma and southeast Kansas.
The following is a summary of the final allocation of the purchase price, which includes the fair value allocation of the assets acquired and liabilities assumed:
| | Keleher | |
Assets Acquired | | | | |
Property, plant and equipment | | $ | 3,276,245 | |
Customer relationships | | | 996,000 | |
Permits | | | 179,257 | |
Goodwill | | | 8,065,314 | |
Right of use assets | | | 1,634,263 | |
Other | | | 199,329 | |
| | | | |
Total Assets Acquired | | | 14,350,408 | |
| | | | |
Liabilities Assumed | | | | |
Lease liabilities | | | 1,634,263 | |
Other | | | 496,145 | |
| | | | |
Total Liabilities Assumed | | | 2,130,408 | |
| | | | |
Total | | $ | 12,220,000 | |
The intangible assets include customer relationships and permits which have useful lives of
fifteen years and
ten years, respectively.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 6. BUSINESS ACQUISITIONS (Continued)
2021 Acquisitions
Missouri Neon
On December 30, 2021, LBO purchased the outdoor advertising assets of Missouri Neon Outdoor, based in Springfield, MO. At the time of the asset purchase, Missouri Neon Outdoor operated over 800 billboard faces in Missouri, Oklahoma and Arkansas.
The following is a summary of the final allocation of the purchase price, which includes the fair value allocation of the assets acquired and liabilities assumed:
| | Neon | |
Assets Acquired | | | | |
Property, plant and equipment | | $ | 8,419,759 | |
Customer relationships | | | 1,174,000 | |
Permits | | | 422,177 | |
Goodwill | | | 12,701,472 | |
Right of use assets | | | 4,093,478 | |
Other | | | 205,272 | |
| | | | |
Total Assets Acquired | | | 27,016,158 | |
| | | | |
Liabilities Assumed | | | | |
Lease liabilities | | | 4,093,478 | |
Other | | | 777,332 | |
| | | | |
Total Liabilities Assumed | | | 4,870,810 | |
| | | | |
Total | | $ | 22,145,348 | |
The intangible assets include customer relationships and permits which have useful lives of fifteen years and ten years, respectively.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 6. BUSINESS ACQUISITIONS (Continued)
Pro Forma Information
The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2021. 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.
| | For the Three Months Ended | | | For the Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| | | | | | | | | | | | | | | | |
Revenue | | $ | 21,447,546 | | | $ | 19,783,350 | | | $ | 62,990,093 | | | $ | 58,600,859 | |
| | | | | | | | | | | | | | | | |
Net (Loss) Income Attributable to Common Stockholders | | $ | (1,408,521 | ) | | $ | (25,074,873 | ) | | $ | 4,458,066 | | | $ | 70,354,882 | |
| | | | | | | | | | | | | | | | |
Basic Net (Loss) Income per Share | | $ | (0.05 | ) | | $ | (0.85 | ) | | $ | 0.15 | | | $ | 2.45 | |
| | | | | | | | | | | | | | | | |
Diluted Net (Loss) Income per Share | | $ | (0.05 | ) | | $ | (0.85 | ) | | $ | 0.15 | | | $ | 2.44 | |
| | | | | | | | | | | | | | | | |
Basic Weighted Average Class A and Class B Common Shares Outstanding | | | 29,698,361 | | | | 29,576,115 | | | | 29,698,361 | | | | 28,751,500 | |
| | | | | | | | | | | | | | | | |
Diluted Weighted Average Class A and Class B Common Shares Outstanding | | | 29,698,361 | | | | 29,576,115 | | | | 29,763,333 | | | | 28,825,428 | |
The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 7. INTANGIBLE ASSETS
Intangible assets consist of the following:
| | September 30, 2022 | | | December 31, 2021 | |
| | | | | | Accumulated | | | | | | | | | | | Accumulated | | | | | |
| | Cost | | | Amortization | | | Balance | | | Cost | | | Amortization | | | Balance | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships | | $ | 66,568,230 | | | $ | (26,869,185 | ) | | $ | 39,699,045 | | | $ | 49,535,976 | | | $ | (23,611,856 | ) | | $ | 25,924,120 | |
Permits, licenses, and lease acquisition costs | | | 11,574,155 | | | | (4,209,786 | ) | | | 7,364,369 | | | | 11,560,896 | | | | (3,413,876 | ) | | | 8,147,020 | |
Site location | | | 849,347 | | | | (292,436 | ) | | | 556,911 | | | | 849,347 | | | | (250,085 | ) | | | 599,262 | |
Noncompetition agreements | | | 626,000 | | | | (559,102 | ) | | | 66,898 | | | | 626,000 | | | | (488,134 | ) | | | 137,866 | |
Technology | | | 1,128,000 | | | | (385,296 | ) | | | 742,704 | | | | 1,128,000 | | | | (311,250 | ) | | | 816,750 | |
Trade names and trademarks | | | 11,152,200 | | | | (941,455 | ) | | | 10,210,745 | | | | 3,852,200 | | | | (590,575 | ) | | | 3,261,625 | |
Nonsolicitation agreement | | | 28,000 | | | | (28,000 | ) | | | - | | | | 28,000 | | | | (28,000 | ) | | | - | |
Capitalized contract costs | | | 1,425,850 | | | | (99,857 | ) | | | 1,325,993 | | | | 1,018,600 | | | | (16,717 | ) | | | 1,001,883 | |
Easements | | | 6,475,001 | | | | - | | | | 6,475,001 | | | | 5,463,526 | | | | - | | | | 5,463,526 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 99,826,783 | | | $ | (33,385,117 | ) | | $ | 66,441,666 | | | $ | 74,062,545 | | | $ | (28,710,493 | ) | | $ | 45,352,052 | |
Future Amortization
The future amortization associated with the intangible assets is as follows:
| | September 30, | | | | | | | | | |
| | 2023 | | | 2024 | | | 2025 | | | 2026 | | | 2027 | | | Thereafter | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships | | $ | 4,974,324 | | | $ | 4,974,324 | | | $ | 4,974,324 | | | $ | 4,974,324 | | | $ | 4,954,752 | | | $ | 14,846,997 | | | $ | 39,699,045 | |
Permits, licenses, and lease acquisition costs | | | 1,064,996 | | | | 1,064,996 | | | | 1,058,344 | | | | 1,031,361 | | | | 1,000,574 | | | | 2,144,098 | | | | 7,364,369 | |
Site location | | | 56,623 | | | | 56,623 | | | | 56,623 | | | | 56,623 | | | | 56,623 | | | | 273,796 | | | | 556,911 | |
Noncompetition agreements | | | 64,893 | | | | 2,005 | | | | - | | | | - | | | | - | | | | - | | | | 66,898 | |
Technology | | | 99,000 | | | | 99,000 | | | | 99,000 | | | | 99,000 | | | | 99,000 | | | | 247,704 | | | | 742,704 | |
Trade names and trademarks | | | 590,567 | | | | 590,567 | | | | 590,567 | | | | 590,567 | | | | 542,026 | | | | 7,306,451 | | | | 10,210,745 | |
Capitalized contract costs | | | 142,585 | | | | 142,585 | | | | 142,585 | | | | 142,585 | | | | 142,585 | | | | 613,068 | | | | 1,325,993 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 6,992,988 | | | $ | 6,930,100 | | | $ | 6,921,443 | | | $ | 6,894,460 | | | $ | 6,795,560 | | | $ | 25,432,114 | | | $ | 59,966,665 | |
Amortization expense for the nine months ended September 30, 2022 and 2021 was $4,674,620 and $3,508,445, respectively.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 7. INTANGIBLE ASSETS (Continued)
The weighted average amortization period, in months, for intangible assets is as follows:
Customer relationships | | | 96 | |
Permits, licenses, and lease acquisition costs | | | 83 | |
Site location | | | 118 | |
Noncompetition agreements | | | 9 | |
Technology | | | 90 | |
Trade names and trademarks | | | 207 | |
Capitalized contract costs | | | 112 | |
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 common stock warrants. The U.S. Treasury securities are held by UCS, classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value. Our common stock warrants of Sky Harbour Group Corporation are measured at fair value, with any unrealized holding gains and losses during the period included in earnings.
| | September 30, | | | December 31, | |
| | 2022 | | | 2021 | |
| | | | | | | | |
Certificates of deposit | | $ | 310,975 | | | $ | 310,276 | |
U.S. Treasury notes held to maturity | | | 4,759,202 | | | | 4,418,719 | |
Common stock warrants of Sky Harbour Group Corporation | | | 2,837,019 | | | | - | |
| | | | | | | | |
Total | | $ | 7,907,196 | | | $ | 4,728,995 | |
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, 2022 and December 31, 2021 are as follows:
| | | | | | Gross | | | | | |
| | | | | | Unrealized | | | Fair | |
| | Cost | | | Gain (Loss) | | | Value | |
| | | | | | | | | | | | |
Marketable equity securities, September 30, 2022 | | $ | 10,920,696 | | | $ | 2,413,498 | | | $ | 13,334,194 | |
| | | | | | | | | | | | |
Marketable equity securities, December 31, 2021 | | $ | 20,893,647 | | | $ | 49,723,850 | | | $ | 70,617,497 | |
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 8. INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)
U.S. Treasury Trading Securities
We classify our investments in debt securities that are bought and held principally for the purpose of selling them in the near term as trading securities. Our debt securities classified as trading are carried at fair value in the consolidated balance sheets, with the change in fair value during the period included in earnings. Interest income is recognized at the coupon rate. Debt securities classified as trading as of September 30, 2022 and December 31, 2021 are as follows:
| | | | | | Gross | | | | | |
| | | | | | Unrealized | | | Fair | |
| | Cost | | | Gain (Loss) | | | Value | |
| | | | | | | | | | | | |
U.S. Treasury trading securities, September 30, 2022 | | $ | 38,337,604 | | | $ | (470,763 | ) | | $ | 37,866,841 | |
| | | | | | | | | | | | |
U.S. Treasury trading securities, December 31, 2021 | | $ | 87,541,764 | | | $ | 3,140 | | | $ | 87,544,904 | |
Long-term Investments
Long-term investments consist of U.S. Treasury securities and certain equity investments. We have the intent and the ability to hold the U.S. Treasury securities to maturity, which ranges from 2023 to 2024. Our U.S. Treasury securities are stated at amortized cost which approximates fair value and are held by UCS.
Long-term investments consist of the following:
| | September 30, | | | December 31, | |
| | 2022 | | | 2021 | |
| | | | | | | | |
U.S. Treasury securities, held to maturity | | $ | 1,972,606 | | | $ | 154,265 | |
Preferred stock | | | 348,695 | | | | 104,019 | |
Voting common stock of CB&T Holding Corporation | | | 19,058,485 | | | | 19,058,485 | |
| | | | | | | | |
Total | | $ | 21,379,786 | | | $ | 19,316,769 | |
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 8. INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)
Equity Investments
During May 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 15.60% of CB&T’s outstanding common stock. CB&T is a closely held corporation, whose majority ownership rests with one family.
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, 2022 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, private aviation infrastructure, and asset management. Our interest in these affiliates ranges from approximately 16% to 30%. Two of the investments in affiliates, Logic Real Estate Companies, LLC, which we refer to as “Logic”, and 24th Street Holding Company, LLC, having a combined carrying amount of $845,233 as of September 30, 2022, are managed by an entity controlled by a member of our board of directors.
Dream Finders Homes, Inc.
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 Colorado, Florida, Georgia, Maryland, North Carolina, South Carolina, Texas and northern Virginia. 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.
On January 20, 2021, Dream Finders Homes, Inc. announced the pricing of its initial public offering of 9,600,000 shares of Class A common stock at the initial public offering price of $13.00 per share. Shares of Class A common stock began trading on the NASDAQ Global Select Market under the symbol “DFH” on Thursday, January 21, 2021. Concurrent with the closing of the initial public offering, all of the outstanding non-voting common units and Series A preferred units of DFH were converted into shares of Class A common stock of Dream Finders Homes, Inc., and all of the outstanding common units of DFH LLC were converted into shares of Class B common stock of Dream Finders Homes, Inc. As a result, our previous equity interest in DFH was converted into 4,681,099 shares of DFH Class A common stock, which are no longer accounted for under the equity method but marked to market each reporting period consistent with the other publicly traded equity securities we hold. In addition, one of our subsidiaries purchased 120,000 shares of DFH Class A common stock at $13.00 per share in the initial public offering. At September 30, 2022, we held 456,328 shares of DFH Class A common stock.
24th Street Fund I & 24th Street Fund II
During 2020, we invested a total of $6,000,000 in two funds, 24th Street Fund I, LLC, and 24th Street Fund II, LLC, that are managed by 24th Street Asset Management LLC, a subsidiary of 24th Street Holding Company, LLC, which we currently own approximately 49.9% of both directly and indirectly through our ownership in Logic. The funds focus on opportunities within secured lending and direct investments in commercial real estate.
Sky Harbour Group Corporation
On September 14, 2021, our subsidiary BOC YAC Funding LLC completed the previously-announced investment of $55 million in Series B Preferred units of Sky Harbour LLC, which we refer to as “SHG.” Following the business combination between Yellowstone Acquisition Company and SHG which occurred on January 25, 2022, these units converted into 5,500,000 shares of Sky Harbour Group Corporation, which we refer to as "Sky Harbour", Class A common stock, at a price of $10 per share. Also, in connection with the business combination, we entered into a subscription agreement with Sky Harbour, pursuant to which Sky Harbour sold to us 4,500,000 shares of Class A common stock at a price of $10 per share, for total cash consideration of $45,000,000. See further discussion within Note 17.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 8. INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (Continued)
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:
| | September 30, | | | December 31, | |
| | 2022 | | | 2021 | |
| | | | | | | | |
Beginning of period | | $ | 61,660,905 | | | $ | 20,913,896 | |
Additional investment in unconsolidated affiliate | | | 45,000,000 | | | | 55,000,000 | |
Distributions received | | | (436,907 | ) | | | (2,251,766 | ) |
Reclassification of marketable securities to investment in affiliate | | | 23,483 | | | | - | |
Reclassification of investment in affiliate to marketable securities | | | - | | | | (12,880,146 | ) |
Transfer of interest | | | (625,498 | ) | | | - | |
Gain on retained interest of deconsolidated affiliate | | | 10,010,090 | | | | - | |
Equity in (loss) income of unconsolidated affiliates | | | (852,807 | ) | | | 878,921 | |
| | | | | | | | |
End of period | | $ | 114,779,266 | | | $ | 61,660,905 | |
Combined summarized financial data for these affiliates is as follows:
| | For the Three Months Ended | | | For the Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| | | | | | | | | | | | | | | | |
Revenue | | $ | 6,434,626 | | | $ | 7,055,929 | | | $ | 19,838,758 | | | $ | 24,854,881 | |
Gross profit | | | 3,100,040 | | | | 2,464,195 | | | | 9,284,767 | | | | 12,467,729 | |
(Loss) income from continuing operations | | | (5,130,468 | ) | | | (2,293,107 | ) | | | (15,216,375 | ) | | | (4,687,712 | ) |
Net income (loss) | | | 2,319,035 | | | | (2,538,089 | ) | | | (6,062,348 | ) | | | (6,167,189 | ) |
Note Receivable from Affiliate
On October 2, 2020, we provided an unsecured term loan of $20,000,000 to Dream Finders Holdings, LLC to be used in expanding DFH's footprint in the Southeast United States. The effective interest rate on the term loan was approximately 14% with a scheduled maturity of May 1, 2021. Monthly interest payments began on November 1, 2020 and were scheduled to continue on the first day of each month until May 1, 2021. On January 25, 2021, DFH repaid the note receivable in full including the future scheduled interest payments prior to the maturity of the note. The total prepayment, including future scheduled interest, was $20,567,776.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 9. FAIR VALUE
The fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value into three broad levels:
Level 1 — Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than quoted prices in active markets that are observable either directly or indirectly, including: quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.
At September 30, 2022 and December 31, 2021, our financial instruments included cash, cash equivalents, receivables, marketable securities, investments, accounts payable, and long-term debt. The carrying value of cash, cash equivalents, receivables, and accounts payable approximates fair value due to the short-term nature of the instruments. The fair value of long-term debt is estimated using quoted prices for similar debt (level 2 in the fair value hierarchy). At September 30, 2022, the estimated fair value of our long-term debt was $26,529,705 which is less than the carrying amount of $28,876,720.
Warrants
We previously determined that the Public Warrants issued in connection with Yellowstone's initial public offering in October 2020 were subject to treatment as a liability. Prior to the deconsolidation of Yellowstone which occurred on January 25, 2022, we marked the Public Warrants to market based upon their observable trading price with changes in fair value recognized in the statement of operations. Our re-measurement of the Public Warrants from January 1, 2022 to January 25, 2022, and January 1, 2021 to September 30, 2021, resulted in a gain of $1,837,211 and $2,039,835, respectively, which is included within "Remeasurement of warrant liability" within our Consolidated Statements of Operations. The Public Warrants were classified as Level 1 as of December 31, 2021.
Following the business combination between Yellowstone Acquisition Company and SHG which occurred on January 25, 2022, we no longer eliminate our investment in the Private Placement Warrants. Our Private Placement warrants related to Sky Harbour are considered level 2 and measured at fair value using observable inputs for similar assets in an active market. Our re-measurement of the Private Placement Warrants from January 25, 2022 to September 30, 2022, resulted in a loss of $1,408,860 included within Other investment (loss) income within our Consolidated Statements of Operations.
Marketable Equity Securities
On an investment life-to-date basis, we have realized net gains on the sale of equity securities within the marketable equity portfolio held at Boston Omaha of approximately $80,000,000. Of this amount, approximately $34,000,000 and $34,000,000 were realized during the nine months ended September 30, 2022 and 2021, respectively. These amounts exclude any realized gains on equity securities held within the marketable equity portfolio managed by UCS.
Sky Harbour Group Corporation Class A common stock
We account for our 22.96% equity interest in Sky Harbour, comprised of 13,118,474 shares of Class A common stock, under the equity method. If our investment in Sky Harbour's Class A common stock was accounted for at fair value based on its quoted market price as of September 30, 2022, it would be valued at approximately $48,300,000.
Contingent Consideration associated with Business Combination
The contingent consideration recorded in conjunction with our acquisition of ACS as discussed further in Note 6 was classified as Level 3 in the fair value hierarchy as the calculation is dependent upon projected company specific inputs using a Monte Carlo simulation. Changes in the estimated fair value of the contingent consideration liability are reported in earnings for the respective period.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 9. FAIR VALUE (Continued)
Marketable Equity Securities, U.S. Treasury Trading Securities, and Corporate Bonds
Marketable equity securities and U.S. Treasury trading securities 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.
| | Total Carrying Amount in Consolidated Balance Sheet September 30, 2022 | | | Quoted Prices in Active Markets for Identical Assets | | | Realized Gains and (Losses) | | | Total Changes in Fair Values Included in Current Period Earnings (Loss) | |
| | | | | | | | | | | | | | | | |
Marketable equity securities and U.S. Treasury trading securities | | $ | 51,201,035 | | | $ | 51,201,035 | | | $ | (5,520,024 | ) | | $ | (9,257,961 | ) |
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 and broadband assets. The following table reflects information related to our asset retirement obligations:
Balance, December 31, 2021 | | $ | 3,162,725 | |
Additions | | | 38,683 | |
Liabilities settled | | | - | |
Accretion expense | | | 152,536 | |
| | | | |
Balance, September 30, 2022 | | $ | 3,353,944 | |
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 11. CAPITAL STOCK
On May 28, 2020, we entered into an underwriting agreement, which we refer to as the “underwriting agreement,” with Wells Fargo Securities, LLC and Cowen and Company, LLC, as joint lead book-running managers for a public offering of 3,200,000 shares, which we refer to as the “firm shares,” of our Class A common stock at a public offering price of $16.00 per share. Under the terms of the underwriting agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 480,000 shares of Class A common stock at the public offering price less underwriting discounts and commissions, which we refer to as the “option shares.” Adam Peterson and Alex Rozek, our Co-Chairmen, together with another member of our board of directors and another employee, purchased, directly or through their affiliates, an aggregate of 39,375 shares of Class A common stock in the offering at the public offering price. On June 2, 2020, we announced the completion of the public offering for a total of 3,680,000 shares, including both the firm shares and all of the option shares issued as a result of the underwriters’ exercise in full of their over-allotment option, resulting in total gross proceeds to us of approximately $58.9 million. We raised this capital to fund the planned expansion of our recently acquired fiber-to-the-home broadband, telecommunication business, to seek to grow our Link billboard business through the acquisitions of additional billboard businesses, and for general corporate purposes. We did not have current agreements, commitments or understandings for any specific material acquisitions at that time. The shares were sold in the offering pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-222853) that was declared effective on February 9, 2018, as supplemented by a prospectus supplement dated May 28, 2020.
On March 30, 2021, we filed a new shelf registration statement on Form S-3ASR (Registration No. 333-254870) which was effective upon filing with the SEC. This shelf registration expired in March 2022.
On April 25, 2022, we filed a shelf registration statement on Form S-3 (File No. 333-264470) that was declared effective on May 11, 2022, relating to the offering of Class A common stock, preferred stock, par value $0.001 per share, which we refer to as “preferred stock,” debt securities and warrants of the Company for up to $500,000,000. Additionally, in the 2022 shelf registration statement, we have registered for resale up to 8,297,093 shares of Class A common stock acquired in 2018 or earlier in private placements in accordance with the terms of a 2018 registration rights agreement. We will not receive any proceeds from the sale of Class A common stock by the selling shareholders. Currently, the selling stockholders are the Massachusetts Institute of Technology, or “MIT”, as well as 238 Plan Associates LLC, an MIT pension and benefit fund and a limited partnership holding our Class A common stock for the economic benefit of MIT. No officer or director has any beneficial interest in any shares eligible for resale by the selling shareholders. We may, from time to time, in one or more offerings, offer and sell Class A common stock or preferred stock, various series of debt securities and/or warrants. We or any selling security holders may offer these securities from time to time in amounts, at prices and on terms determined at the time of offering. We may sell these securities to or through one or more underwriters, dealers or agents or directly to purchasers on a delayed or continuous basis. Unless otherwise set forth in an applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities that we offer for general corporate purposes, including, but not limited to, financing our existing businesses and operations, and expanding our businesses and operations through additional hires, strategic alliances and acquisitions. Unless otherwise set forth in a prospectus supplement, we will not receive any proceeds from the sale of securities by any selling stockholders.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 11. CAPITAL STOCK (Continued)
On April 6, 2021, we sold 2,645,000 shares of our Class A common stock, par value $.001 per share, at a price of $25.00 per share, of which 2,345,000 shares were sold by us through Wells Fargo Securities acting as the sole book running manager of the public offering. Shares sold included 345,000 shares issued as a result of the underwriters’ exercise in full of their option to purchase additional shares, and 300,000 shares were sold by a selling stockholder. The offering resulted in total gross proceeds to us of $58,625,000. We did not receive any of the proceeds from the sale of shares by the selling stockholder. The compensation to Wells Fargo Securities for sales of Class A common stock sold pursuant to the Sales Agreement was an amount equal to 5.5% of the gross proceeds. Net proceeds to us after underwriting commissions were $55,400,625. Other offering costs incurred were $133,169. The shares were sold in the offering pursuant to an automatically effective shelf registration statement that was filed with the SEC on March 30, 2021.
At September 30, 2022, there were 104,772 outstanding warrants for our Class B common stock and 784 outstanding warrants for our Class A common stock. Each share of Class B common stock is identical to the Class A common stock in liquidation, dividend and similar rights. The only differences between our Class B common stock and our Class A common stock is that each share of Class B common stock has 10 votes for each share held, while the Class A common stock has a single vote per share, and certain actions cannot be taken without the approval of the holders of the Class B common stock.
A summary of warrant activity For the Nine Months Ended September 30, 2022 is presented in the following table.
| | Shares Under Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Life (in years) | | | Aggregate Intrinsic Value of Vested Warrants | |
| | | | | | | | | | | | | | | | |
Outstanding as of December 31, 2021 | | | 105,556 | | | $ | 9.95 | | | | 3.50 | | | $ | 1,982,342 | |
| | | | | | | | | | | | | | | | |
Issued | | | - | | | | | | | | | | | | | |
Exercised | | | - | | | | | | | | | | | | | |
Expired | | | - | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding as of September 30, 2022 | | | 105,556 | | | $ | 9.95 | | | | 2.75 | | | $ | 1,381,728 | |
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
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 could borrow up to $23,560,000 under the term loan portion of the facility and $5,000,000 under the revolving credit line of the facility (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.
On December 6, 2021, Link entered into a Fourth Amendment to the Credit Agreement with the Lender which modified the original Credit Agreement by merging all outstanding principal amounts under both Term Loan 1 and Term Loan 2 into one term loan (the "Term Loan") having a fixed interest rate of 4.00% per annum, and increasing the total Term Loan borrowing limit to $30,000,000.
On May 31, 2022, Link entered into a Fifth Amendment to the Credit Agreement with the Lender which modified the Credit Agreement by extending the period of time under which Link may issue to BOC a cash dividend from January 31, 2022 to June 30, 2022 in the amount up to $8,125,000 in the aggregate.
As of September 30, 2022, Link has borrowed $30,000,000 through the Term Loan under the Credit Facility. Principal amounts under the Term Loan are payable in monthly installments according to a 15-year amortization schedule. Principal payments commenced on July 1, 2020 for amounts previously borrowed under Term Loan 1 and October 1, 2020 for amounts previously borrowed under Term Loan 2. The Term Loan is payable in full on December 6, 2028.
The revolving line of credit loan facility has a $5,000,000 maximum availability. Interest payments are based on the 30-day U.S. Prime Rate minus an applicable margin ranging between 0.65% and 1.15% dependent on Link’s consolidated leverage ratio. The revolving line of credit is due and payable on August 12, 2023.
Long-term debt included within our consolidated balance sheet as of September 30, 2022 consists of Term Loan borrowings of $28,876,720, of which $1,529,572 is classified as current. There were no amounts outstanding related to the revolving line of credit as of September 30, 2022.
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 ended December 31, 2021 of not greater than 3.50 to 1.00, (b) beginning with the fiscal quarter ending December 31, 2022 of not greater than 3.25 to 1.00, and (c) beginning with the fiscal quarter ending December 31, 2023 and thereafter, of not greater than 3.00 to 1.0, and a minimum consolidated fixed charge coverage ratio of not less than 1.15 to 1.00 measured quarterly, based on a rolling four quarters. The Company was in compliance with these covenants as of September 30, 2022.
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.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 13. LEASES
We enter into operating lease contracts primarily for land and office space. Agreements 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.
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.
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 and nine months ended September 30 is as follows:
| | For the Three Months Ended | | | For the Nine Months Ended | | |
| | September 30, | | | September 30, | | |
| | | 2022 | | | | 2021 | | | | 2022 | | | | 2021 | | Statement of Operations Classification |
| | | | | | | | | | | | | | | | | |
Lease cost | | $ | 2,045,850 | | | $ | 1,675,707 | | | $ | 6,018,295 | | | $ | 5,196,936 | | Cost of billboard and broadband revenues and general and administrative |
Variable and short-term lease cost | | | 513,103 | | | | 131,409 | | | | 1,514,789 | | | | 413,555 | | Cost of billboard and broadband revenues and general and administrative |
| | | | | | | | | | | | | | | | | |
Total Lease Cost | | $ | 2,558,953 | | | $ | 1,807,116 | | | $ | 7,533,084 | | | $ | 5,610,491 | | |
Supplemental cash flow information related to operating leases is as follows:
| | For the Three Months Ended | | | For the Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| | | | | | | | | | | | | | | | |
Cash payments for operating leases | | $ | 1,863,789 | | | $ | 1,507,763 | | | $ | 5,942,681 | | | $ | 5,060,018 | |
New operating lease assets obtained in exchange for operating lease liabilities | | $ | 680,763 | | | $ | 74,915 | | | $ | 4,576,864 | | | $ | 7,978,907 | |
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 13. LEASES (Continued)
Operating Lease Assets and Liabilities
| | | | | | | | | |
| | September 30, 2022 | | | December 31, 2021 | | Balance Sheet Classification |
| | | | | | | | | |
Lease assets | | $ | 63,326,248 | | | $ | 61,252,888 | | Other Assets: Right of use assets |
| | | | | | | | | |
Current lease liabilities | | $ | 4,971,090 | | | $ | 4,580,833 | | Current Liabilities: Lease liabilities |
Noncurrent lease liabilities | | | 57,821,207 | | | | 56,032,547 | | Long-term Liabilities: Lease liabilities |
| | | | | | | | | |
Total Lease Liabilities | | $ | 62,792,297 | | | $ | 60,613,380 | | |
Maturity of Operating Lease Liabilities
| | September 30, 2022 | |
| | | | |
2023 | | $ | 7,639,455 | |
2024 | | | 7,124,149 | |
2025 | | | 6,757,632 | |
2026 | | | 6,492,181 | |
2027 | | | 6,081,935 | |
Thereafter | | | 58,632,924 | |
| | | | |
Total lease payments | | | 92,728,276 | |
Less imputed interest | | | (29,935,979 | ) |
| | | | |
Present Value of Lease Liabilities | | $ | 62,792,297 | |
As of September 30, 2022, our operating leases have a weighted-average remaining lease term of 17.25 years and a weighted-average discount rate of 4.61%.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
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, ACS and UCS. SSS clients are multi-state and UCS, SCS, ACS 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, ACS and UCS and to make additional business acquisitions in the insurance industry.
Link Media Holdings, LLC
LMH conducts our billboard rental operations. LMH billboards are located in Alabama, Arkansas, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Oklahoma, Virginia, West Virginia, and Wisconsin.
Fiber is Fast, LLC
FIF conducts our broadband operations. FIF provides high-speed broadband services to its customers located in Arizona, Florida, Nevada, and Utah.
| | | | | | | | | | | | | | | | | | Total | |
Three Months Ended September 30, 2022 | | GIG | | | LMH | | | FIF | | | Unallocated | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 3,401,765 | | | $ | 9,942,846 | | | $ | 8,102,935 | | | $ | - | | | $ | 21,447,546 | |
Segment gross profit | | | 1,570,973 | | | | 6,439,231 | | | | 5,901,305 | | | | - | | | | 13,911,509 | |
Segment income (loss) from operations | | | (592,907 | ) | | | 1,514,135 | | | | (451,127 | ) | | | (2,265,298 | ) | | | (1,795,197 | ) |
Capital expenditures | | | - | | | | 1,268,089 | | | | 8,191,195 | | | | 6,739,309 | | | | 16,198,593 | |
Depreciation and amortization | | | 79,289 | | | | 2,086,893 | | | | 1,976,344 | | | | 27,725 | | | | 4,170,251 | |
| | | | | | | | | | | | | | | | | | Total | |
Three Months Ended September 30, 2021 | | GIG | | | LMH | | | FIF | | | Unallocated | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 2,701,353 | | | $ | 8,023,065 | | | $ | 3,773,729 | | | $ | - | | | $ | 14,498,147 | |
Segment gross profit | | | 1,671,777 | | | | 5,030,814 | | | | 3,031,647 | | | | - | | | | 9,734,238 | |
Segment income (loss) from operations | | | (358,963 | ) | | | 973,146 | | | | 54,240 | | | | (3,429,421 | ) | | | (2,760,998 | ) |
Capital expenditures | | | - | | | | 374,419 | | | | 2,147,334 | | | | 2,239,461 | | | | 4,761,214 | |
Depreciation and amortization | | | 54,865 | | | | 1,771,135 | | | | 953,437 | | | | 27,283 | | | | 2,806,720 | |
| | | | | | | | | | | | | | | | | | | Total | |
Nine Months Ended September 30, 2022 | | GIG | | | LMH | | | FIF | | | Unallocated | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 9,470,889 | | | $ | 28,906,159 | | | $ | 20,258,461 | | | $ | - | | | $ | 58,635,509 | |
Segment gross profit | | | 5,458,412 | | | | 18,219,390 | | | | 15,075,244 | | | | - | | | | 38,753,046 | |
Segment income (loss) from operations | | | (766,078 | ) | | | 3,859,510 | | | | (787,756 | ) | | | (7,267,591 | ) | | | (4,961,915 | ) |
Capital expenditures | | | 297,606 | | | | 4,970,449 | | | | 58,492,759 | | | | 7,138,822 | | | | 70,899,636 | |
Depreciation and amortization | | | 191,805 | | | | 6,117,038 | | | | 4,449,264 | | | | 82,097 | | | | 10,840,204 | |
| | | | | | | | | | | | | | | | | | Total | |
Nine Months Ended September 30, 2021 | | GIG | | | LMH | | | FIF | | | Unallocated | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 7,424,245 | | | $ | 23,129,582 | | | $ | 11,329,220 | | | $ | - | | | $ | 41,883,047 | |
Segment gross profit | | | 4,392,854 | | | | 14,202,054 | | | | 8,976,496 | | | | - | | | | 27,571,404 | |
Segment income (loss) from operations | | | (1,578,567 | ) | | | 1,945,573 | | | | 1,320,097 | | | | (7,027,351 | ) | | | (5,340,248 | ) |
Capital expenditures | | | 3,044,246 | | | | 7,777,058 | | | | 7,203,743 | | | | 2,912,817 | | | | 20,937,864 | |
Depreciation and amortization | | | 151,358 | | | | 5,224,098 | | | | 2,132,012 | | | | 67,428 | | | | 7,574,896 | |
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 14. INDUSTRY SEGMENTS (Continued)
| | | | | | | | | | | | | | | | | | | Total | |
As of September 30, 2022 | | GIG | | | LMH | | | FIF | | | Unallocated | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | | |
Accounts receivable, net | | $ | 2,831,547 | | | $ | 3,204,547 | | | $ | 366,239 | | | $ | 488 | | | $ | 6,402,821 | |
Goodwill | | | 11,325,138 | | | | 122,410,668 | | | | 37,710,162 | | | | - | | | | 171,445,968 | |
Total assets | | | 68,917,720 | | | | 263,887,850 | | | | 139,066,707 | | | | 202,786,873 | | | | 674,659,150 | |
| | | | | | | | | | | | | | | | | | Total | |
As of December 31, 2021 | | GIG | | | LMH | | | FIF | | | Unallocated | | | Consolidated | |
| | | | | | | | | | | | | | | | | | | | |
Accounts receivable, net | | $ | 1,495,664 | | | $ | 2,770,428 | | | $ | 202,771 | | | $ | - | | | $ | 4,468,863 | |
Goodwill | | | 11,058,922 | | | | 120,642,896 | | | | 19,635,158 | | | | - | | | | 151,336,976 | |
Total assets | | | 57,150,042 | | | | 276,266,829 | | | | 69,113,699 | | | | 404,523,223 | | | | 807,053,793 | |
NOTE 15. RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses ("LAE") for the nine months ended September 30:
|
|
2022 |
|
|
2021 |
|
Losses and LAE at January 1 |
|
$ |
1,381,526 |
|
|
$ |
2,492,334 |
|
|
|
|
|
|
|
|
|
|
Provision for losses and LAE claims arising in: |
|
|
|
|
|
|
|
|
Current year |
|
|
943,706 |
|
|
|
693,750 |
|
Prior year |
|
|
887,500 |
|
|
|
578,302 |
|
Total incurred |
|
|
1,831,206 |
|
|
|
1,272,052 |
|
Losses and LAE payments for claims arising in: |
|
|
|
|
|
|
|
|
Current year |
|
|
100,277 |
|
|
|
1,065,955 |
|
Prior years |
|
|
938,472 |
|
|
|
691,410 |
|
Total payments |
|
|
1,038,749 |
|
|
|
1,757,365 |
|
|
|
|
|
|
|
|
|
|
Less reinsurance recoverable |
|
|
365,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Losses and LAE at September 30, |
|
$ |
1,808,983 |
|
|
$ |
2,007,021 |
|
For the nine months ended September 30, 2022, $938,472 was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There has been a $528 favorable prior year development during the nine months ended September 30, 2022. Reserves remaining as of September 30, 2022 for prior years are $887,500 as a result of re-estimation of unpaid losses and loss adjustment expenses. For the nine months ended September 30, 2021, $691,410 was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There was a $489,424 favorable prior year development during the nine months ended September 30, 2021.
Reserves remaining as of September 30, 2021 for prior years were $578,302 as a result of re-estimation of unpaid losses and loss adjustment expenses. The favorable prior years' loss development was the result of a re-estimation of amounts ultimately to be paid on prior year losses and loss adjustment expense. Original estimates are increased or decreased as additional information becomes known regarding individual claims. Reinsurance recoverables were $365,000 at September 30, 2022. At September 30, 2021, we did not have any reinsurance recoverables recorded.
NOTE 16. CUSTODIAL RISK
As of September 30, 2022, we had approximately $43,910,674 in excess of federally insured limits on deposit with financial institutions.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Nine Months Ended September 30, 2022 and 2021
NOTE 17. SPECIAL PURPOSE ACQUISITION COMPANY
In October 2020, our subsidiary BOC Yellowstone LLC, which we refer to as “BOC Yellowstone,” served as sponsor for the underwritten initial public offering of a special purpose acquisition company named Yellowstone Acquisition Company, which we refer to as “Yellowstone.” Yellowstone sold in its public offering 13,598,898 units at a price of $10.00 per unit, each unit consisting of one share of Class A common stock and a redeemable warrant to purchase one-half of a share of Class A common stock at an exercise price of $11.50 per share. Between August and November 2020, we invested, through BOC Yellowstone, approximately $7.8 million through the purchase of 3,399,724 shares of Class B common stock and 7,719,779 non-redeemable private placement warrants, each warrant entitling us to purchase one share of Class A common stock at $11.50 per share. BOC Yellowstone, as the sponsor of Yellowstone and under the terms of the public offering, owned approximately 20% of Yellowstone's issued and outstanding common stock. The purpose of the offering was to pursue a business combination in an industry other than the three industries in which we currently own and operate businesses: outdoor advertising, surety insurance, and broadband services businesses. The Units were sold at a price of $10.00 per unit, generating gross proceeds to Yellowstone of $125,000,000, and traded on the NASDAQ Stock Market, LLC under the ticker symbol “YSACU”. After the securities comprising the units began separate trading, the shares of Class A common stock and warrants were listed on NASDAQ under the symbols “YSAC” and “YSACW,” respectively.
On August 1, 2021, Yellowstone entered into a business combination agreement with Sky Harbour LLC (“SHG”), a developer of private aviation infrastructure focused on building, leasing and managing business aviation hangars. On September 14, 2021, our subsidiary BOC YAC Funding LLC completed the previously-announced investment of $55 million in Series B Preferred Units of SHG. In addition to our $55 million investment, we also agreed to provide to SHG an additional $45 million through the purchase of additional shares of Yellowstone Class A common stock at a price of $10 per share through a private placement investment (“PIPE”).
On January 25, 2022, Yellowstone completed the previously announced proposed business combination with SHG following stockholder approval. Upon the consummation of the business combination, SHG became a consolidated subsidiary of Yellowstone and Yellowstone was renamed Sky Harbour Group Corporation, shares of which are now listed for trading on the New York Stock Exchange under the symbol “SKYH” and Sky Harbour warrants are also listed for trading on the New York Stock Exchange under the symbol "SKYH.WS". Also in connection with the business combination, we entered into a subscription agreement with Sky Harbour, pursuant to which Sky Harbour sold to us at the closing of the business combination 4,500,000 shares of Class A common stock at a price of $10 per share, for total cash consideration of $45,000,000.
In connection with the business combination, we recognized a non-cash gain during the first quarter of fiscal 2022 of $24,977,740 related to our deconsolidation of Yellowstone, which is included within other income on our Consolidated Statement of Operations. Of the total gain recognized on deconsolidation, approximately $10,000,000 relates to the remeasurement of our retained investment in Sky Harbour via the Sponsor shares, Series B Preferred Units, and PIPE investment, each of which converted into shares of Sky Harbour's Class A common stock on the transaction date, and approximately $15,000,000 relates to the deconsolidation of Yellowstone's assets and liabilities as of the transaction date. The fair value of our retained investment at the deconsolidation date was measured based upon the observable trading price of Sky Harbour's Class A common stock. Subsequent to the business combination, we account for our 22.96% equity investment in Sky Harbour, comprised of 13,118,474 shares of Class A common stock, under the equity method. If our investment in Sky Harbour's Class A common stock was accounted for at fair value based on its quoted market price as of September 30, 2022, it would be valued at approximately $48,300,000.
We have evaluated our investment in Sky Harbour as of September 30, 2022, and determined that there was not an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) our assessment that the underlying business and financial condition of Sky Harbour is favorable; (ii) the period of time for which the fair value has been less than the carrying value, (iii) an expectation that Sky Harbour's stock price will recover in the near-term, and (iv) our ability and intent to hold the investment until that recovery. We will continue to review our investment in Sky Harbour for an other-than-temporary impairment on a quarterly basis or upon the occurrence of certain events. If Sky Harbour's stock price does not recover above our carrying value of $8.16 per share in the near-term, it will likely result in an impairment of our investment. There may also be a future impairment of our investment if our expectations about Sky Harbour's prospective results and cash flows decline, which could be influenced by a variety of factors including adverse market conditions.