Company Quick10K Filing
Quick10K
Boston Omaha
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-13 Enter Agreement, Other Events, Exhibits
8-K 2019-08-12 Enter Agreement, Off-BS Arrangement, Officers, Exhibits
8-K 2019-08-09 Regulation FD, Exhibits
8-K 2019-06-08 Officers, Shareholder Vote
8-K 2019-05-10 Regulation FD, Exhibits
8-K 2019-03-18 Regulation FD, Exhibits
8-K 2019-01-31 Other Events, Exhibits
8-K 2019-01-10 Officers, Other Events, Exhibits
8-K 2019-01-01 Officers
8-K 2018-11-13 Regulation FD, Exhibits
8-K 2018-09-22 Officers, Shareholder Vote
8-K 2018-08-31 Enter Agreement, M&A, Other Events, Exhibits
8-K 2018-08-22 Enter Agreement, M&A, Other Events, Exhibits
8-K 2018-08-13 Regulation FD, Exhibits
8-K 2018-07-31 Other Events, Exhibits
8-K 2018-07-18 Other Events, Exhibits
8-K 2018-06-30 Other Events, Exhibits
8-K 2018-05-31 Regulation FD, Exhibits
8-K 2018-05-15 Enter Agreement, Sale of Shares, Regulation FD, Exhibits
8-K 2018-05-04 Amend Bylaw, Shareholder Vote, Other Events, Exhibits
8-K 2018-03-30 Regulation FD, Exhibits
8-K 2018-03-06 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2018-03-02 Enter Agreement, Other Events, Exhibits
8-K 2018-02-27 Enter Agreement, Other Events, Exhibits
8-K 2018-02-22 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2018-01-05 Other Events, Exhibits
TRNO Terreno Realty 3,163
UE Urban Edge Properties 2,081
IIPR Innovative Industrial Properties 1,004
FOR Forestar Group 801
BXG Bluegreen Vacations 721
RLGY Realogy Holdings 540
LMRK Landmark Infrastructure Partners 393
NTP Nam Tai Property 344
ARL American Realty Investors 187
AAMC Altisource Asset Management 15
BOMN 2019-06-30
Note 1. Organization and Background
Note 2. Summary of Significant Accounting Policies
Note 3. Restricted Cash
Note 4. Accounts Receivable
Note 5. Property and Equipment
Note 6. Business Acquisitions
Note 7. Intangible Assets
Note 8. Investments, Including Investments Accounted for Using The Equity Method
Note 9. Fair Value
Note 10. Asset Retirement Obligations
Note 11. Capital Stock
Note 12. Leases
Note 13. Industry Segments
Note 14. Custodial Risk
Note 15. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex_153251.htm
EX-31.2 ex_153252.htm
EX-31.3 ex_153264.htm
EX-32.1 ex_153253.htm
EX-32.2 ex_153254.htm
EX-32.3 ex_153265.htm

Boston Omaha Earnings 2019-06-30

BOMN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 bomn20190630_10q.htm FORM 10-Q bomn20190630_10q.htm
 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

(MARK ONE)

 

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

For the quarterly period ended June 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

 


BOSTON OMAHA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 


 

   

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)

 


 

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  ☒

 

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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 21,954,072 shares of Class A common stock and 1,055,560 shares of Class B common stock as of August 8, 2019.

 

 

 


 

BOSTON OMAHA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2019

TABLE OF CONTENTS

 

 

Page

Part I – Financial Information

4
Item 1. Consolidated Financial Statements (Unaudited). 4
Consolidated Balance Sheets – June 30, 2019 and December 31, 2018 4
Consolidated Statements of Operations – Three and Six Months Ended June 30, 2019 and June 30, 2018 6
Consolidated Statements of Changes in Stockholders’ Equity – June 30, 2019 and June 30, 2018 7
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2019 and June 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.

 

 


 

 

 

 

 

 

 

 

 

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

Consolidated Financial Statements

Unaudited

 

For the Six Months Ended June 30, 2019 and 2018

 

 

 

 

 

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Balance Sheets

Unaudited

 

ASSETS

                 
   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

Current Assets:

               

Cash and cash equivalents

  $ 11,656,150     $ 17,105,072  

Restricted cash

    706,317       1,038,767  

Accounts receivable, net

    4,874,074       4,464,444  

Interest receivable

    109,272       33,552  

Short-term investments

    5,112,283       6,251,064  

Marketable equity securities

    12,022,361       -  

U. S. Treasury securities available for sale

    85,019,145       86,845,386  

Prepaid expenses

    1,635,973       2,823,654  
                 

Total Current Assets

    121,135,575       118,561,939  
                 

Property and Equipment, net

    40,991,160       41,702,155  
                 

Other Assets:

               

Goodwill

    98,685,795       98,685,795  

Intangible assets, net

    31,465,275       37,032,534  

Investments

    43,667,273       32,381,686  

Investments in unconsolidated affiliates

    529,100       568,713  

Funds held as collateral assets

    1,533,084       973,674  

Deferred policy acquisition costs

    1,619,718       1,412,248  

Right of use assets

    50,307,264       -  

Other

    225,047       875,777  
                 

Total Other Assets

    228,032,556       171,930,427  
                 

Total Assets

  $ 390,159,291     $ 332,194,521  

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Balance Sheets (Continued)

Unaudited

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY

                 
   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

Current Liabilities:

               

Accounts payable and accrued expenses

  $ 4,440,085     $ 3,550,856  

Short-term payables for business acquisitions

    935,620       2,000,610  

Lease liabilities

    3,390,314       -  

Funds held as collateral

    1,533,084       973,674  

Unearned premiums

    6,561,639       4,935,310  

Deferred revenue

    1,350,066       975,690  
                 

Total Current Liabilities

    18,210,808       12,436,140  
                 

Long-term Liabilities:

               

Asset retirement obligations

    1,891,645       1,824,419  

Lease liabilities

    45,468,802       -  

Other long-term liabilties

    -       1,316,000  

Deferred tax liability

    57,000       57,000  
                 

Total Liabilities

    65,628,255       15,633,559  
                 

Redeemable Noncontrolling Interest

    1,623,132       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, 21,619,321 and 21,029,324 shares issued and outstanding, respectively

    21,619       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

    349,402,987       335,518,323  

Accumulated deficit

    (26,517,758 )     (20,325,024 )
                 

Total Stockholders' Equity

    322,907,904       315,215,384  
                 

Total Liabilities, Redeemable Noncontrolling Interest, and Stockholders' Equity

  $ 390,159,291     $ 332,194,521  

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statements of Operations

Unaudited

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Revenues:

                               

Billboard rentals, net

  $ 7,149,992     $ 1,699,269     $ 13,930,382     $ 3,249,459  

Premiums earned

    2,487,557       507,045       4,369,899       984,349  

Insurance commissions

    402,956       751,684       758,103       1,516,868  

Investment and other income

    99,056       31,761       191,902       62,027  
                                 

Total Revenues

    10,139,561       2,989,759       19,250,286       5,812,703  
                                 

Costs and Expenses:

                               
                                 

Cost of billboard revenues (exclusive of depreciation and amortization)

    2,764,890       842,787       5,476,287       1,565,621  

Cost of insurance revenues (exclusive of depreciation and amortization)

    1,430,983       264,672       2,716,705       477,536  

Employee costs

    2,966,433       1,863,658       5,844,452       3,706,024  

Professional fees

    641,535       576,461       2,060,681       1,420,375  

General and administrative

    1,671,480       848,942       3,488,101       1,700,215  

Amortization

    2,856,572       690,905       5,705,124       1,451,240  

Depreciation

    861,122       306,714       1,704,405       635,407  

Loss on disposition of assets

    43,254       81,857       25,533       81,857  

Bad debt expense

    72,777       14,515       153,655       14,515  

Accretion

    33,154       2,939       65,932       5,995  
                                 

Total Costs and Expenses

    13,342,200       5,493,450       27,240,875       11,058,785  
                                 

Net Loss from Operations

    (3,202,639 )     (2,503,691 )     (7,990,589 )     (5,246,082 )
                                 

Other Income (Expense):

                               

Interest income

    605,750       648,223       1,165,192       1,091,946  

Equity in income of unconsolidated affiliates

    69,016       101,429       163,769       385,091  

Unrealized gain on securities

    126,621       206,306       50,516       113,303  

Gain (loss) on disposition of investments

    304,462       (54,733 )     424,844       (54,733 )

Interest expense

    -       (264 )     -       (1,804 )
                                 

Net Loss Before Income Taxes

    (2,096,790 )     (1,602,730 )     (6,186,268 )     (3,712,279 )

Income Tax (Provision) Benefit

    -       -       -       -  
                                 

Net Loss

    (2,096,790 )     (1,602,730 )     (6,186,268 )     (3,712,279 )

Noncontrolling interest in subsidiary (income) loss

    (17,558 )     4,633       (6,466 )     44,800  
                                 

Net Loss Attributable to Common Stockholders

  $ (2,114,348 )   $ (1,598,097 )   $ (6,192,734 )   $ (3,667,479 )
                                 

Basic and Diluted Net Loss per Share

  $ (0.09 )   $ (0.08 )   $ (0.28 )   $ (0.21 )
                                 

Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding

    22,452,540       19,165,153       22,320,114       17,780,454  

 

 

See accompanying notes to the unaudited consolidated financial statements. 

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statements of Changes in Stockholders' Equity

Unaudited

 

   

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  

 

 

 See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statements of Changes in Stockholders' Equity (Continued)

Unaudited

 

   

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  

 

 

 See accompanying notes to the unaudited consolidated financial statements.

 

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

 Consolidated Statements of Cash Flows

Unaudited

 

   

For the Six Months Ended

 
   

June 30,

 
   

2019

   

2018

 

Cash Flows from Operating Activities:

               

Net Loss

  $ (6,186,268 )   $ (3,712,279 )

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

               

Amortization of right of use assets

    1,766,701       -  

Depreciation, amortization, and accretion

    7,475,461       2,092,642  

Loss on disposition of assets

    25,533       81,857  

Bad debt expense

    153,655       14,515  

Equity in earnings of unconsolidated affiliates

    (163,769 )     (385,091 )

Unrealized gain on securities

    (50,516 )     (113,303 )

(Gain) loss on disposition of investments

    (424,844 )     54,733  

Changes in operating assets and liabilities:

               

Accounts receivable

    (563,285 )     (209,704 )

Interest receivable

    (75,720 )     (692,109 )

Prepaid expenses

    (650,949 )     (343,838 )

Distributions from unconsolidated affiliates

    203,382       382,443  

Deferred policy acquisition costs

    (207,470 )     (135,084 )

Other assets

    50,187       501  

Accounts payable and accrued expenses

    889,229       (234,160 )

Lease liabilities

    (1,346,151 )     -  

Unearned premiums

    1,626,329       501,165  

Deferred revenue

    374,376       226,118  
                 

Net Cash Provided by (Used in) Operating Activities

    2,895,881       (2,471,594 )
                 

Cash Flows from Investing Activities:

               

Payments on short-term payables for business acquisitions

    (1,064,990 )     (360,000 )

Proceeds from disposition of assets

    38,729       30,000  

Purchase of preferred units

    (12,000,000 )     -  

Purchases of equipment and related assets

    (1,434,940 )     (1,769,020 )

Proceeds from sales of investments

    550,963,197       431,908,709  

Purchase of investments

    (559,335,591 )     (520,460,925 )
                 

Net Cash Used in Investing Activities

    (22,833,595 )     (90,651,236 )

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

 

 Consolidated Statements of Cash Flows (Continued)

Unaudited

 

   

For the Six Months Ended

 
   

June 30,

 
   

2019

   

2018

 
                 

Cash Flows from Financing Activities:

               

Proceeds from issuance of stock

  $ 14,606,857     $ 26,087,283  

Proceeds from issuance of stock to related parties

    -       150,000,000  

Offering costs

    (450,515 )     (1,522,194 )
                 

Net Cash Provided by Financing Activities

    14,156,342       174,565,089  
                 

Net (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash

    (5,781,372 )     81,442,259  

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period

    18,143,839       7,230,570  
                 

Cash, Cash Equivalents, and Restricted Cash, End of Period

  $ 12,362,467     $ 88,672,829  
                 

Interest Paid in Cash

  $ -     $ 1,804  
                 

Income Taxes Paid in Cash

  $ -     $ -  

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION

and SUBSIDIARIES

 

 

Consolidated Statement of Cash Flows (Continued)

Supplemental Schedules of Non-cash Investing and Financing Activities

Unaudited

 

   

For the Six Months Ended

 
   

June 30,

 
   

2019

   

2018

 
                 

Asset retirement obligations

  $ 1,294     $ 174,669  
                 

Note receivable exchanged for preferred stock

    -       104,019  
                 

Increase in redeemable noncontrolling interest

    271,088       -  

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 1.     ORGANIZATION AND BACKGROUND

 

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

 

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

 

On April 20, 2016, we completed an acquisition of a surety bond brokerage business. On December 7, 2016, we acquired a fidelity and surety bond 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”

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

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 Six Months Ended June 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 six months ended June 30, 2019 and 2018 was $641,267 and $164,868, 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 Six Months Ended June 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 12 contains further details.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

 

NOTE 3.     RESTRICTED CASH

 

Restricted cash consists of the following:

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

Insurance premium escrow

  $ 706,317     $ 1,038,767  

 

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.

 

   

June 30,

   

June 30,

 
   

2019

   

2018

 
                 

Cash and cash equivalents

  $ 11,656,150     $ 88,166,783  

Restricted cash

    706,317       506,046  
                 

Total Cash, Cash Equivalents, and Restricted Cash as Presented in the Consolidated Statements of Cash Flows

  $ 12,362,467     $ 88,672,829  

 

 

NOTE 4.     ACCOUNTS RECEIVABLE

 

Accounts receivable consist of the following:

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

Trade accounts

  $ 3,744,651     $ 3,621,695  

Premiums

    1,215,111       890,974  

Anticipated salvage and subrogation

    -       2,340  

Allowance for doubtful accounts

    (85,688 )     (50,565 )
                 

Total Accounts Receivable, net

  $ 4,874,074     $ 4,464,444  

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 5.     PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

Structures, displays, and equipment

  $ 44,545,708     $ 44,025,894  

Vehicles and equipment

    1,002,118       642,081  

Office furniture and equipment

    925,910       973,431  

Accumulated depreciation

    (5,482,576 )     (3,939,251 )
                 

Total Property and Equipment, net

  $ 40,991,160     $ 41,702,155  

 

 

Depreciation expenses for the six months ended June 30, 2019 and 2018 was $1,704,405 and $635,407, respectively. For the six months ended June 30, 2019 and 2018, we realized losses on the disposition of assets in the amount of $25,533 and $81,857, respectively.

 

 

NOTE 6.     BUSINESS ACQUISITIONS

 

There were no business acquisitions for the six months ended June 30, 2019 and 2018.

 

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, entered into a purchase agreement with Tammy Lynn Outdoor, LLC, which we refer to as “Tammy Lynn,” based in Bluefield, West Virginia. The assets acquired are primarily located in West Virginia with additional acquired assets located in Virginia. The purchase price consisted of $14,763,261 in cash, net of adjustments, and 85,170 shares of our Class A common stock. The acquisition was completed for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. During the second quarter of 2019, we completed our assessment of customer relationships, structures, permits, and easements; as well as our review of lease contracts which allowed us to finalize the purchase price allocation.

 

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

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 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 entered into a purchase agreement with Key Outdoor, Inc., which we refer to as “Key,” Angela K. Dahl, and Robert A. Dahl, by which LMM acquired over 700 billboard structures and related assets from Key. The billboards and related assets are located in Illinois, Iowa and Missouri.

 

The purchase price for the acquired assets was $38,000,000, subject to certain post-closing adjustments, which totaled $233,894, and are still open for adjustments. A portion of the purchase price equal to $1,900,000 was held back by LMM and will be disbursed, subject to any claims for indemnification, over a 12 month period. Another $329,467 is being held back as required consent holdback. Both holdbacks, 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, have also entered into five year noncompetition and nonsolicitation agreements in connection with the acquisition. Total cash paid at closing was $36,004,427. As of June 30, 2019, we made payments of $1,064,990 on the short-term payable for business acquisitions.

 

The provisional purchase price allocation is based on internal information derived from our previous acquisitions in the Midwestern United States and will be revised when an independent appraisal has been completed. Due to the timing of the transaction, the initial accounting for the business combination is incomplete. We are still in the process of obtaining and assessing the documentation of the contracts for customer relationships and detailed reports for structures and permits; also, we are reviewing lease contracts for potentially favorable leases and asset retirement obligations. Additionally, we are still in the process of verifying items in connection with the post closing adjustments which remain open.

 

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.

 

Waitt Outdoor, LLC

 

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

 

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

 

The provisional purchase price allocation is based on internal information derived from our previous acquisitions in the Midwestern United States and will be revised when an independent appraisal has been completed. Due to the timing of the transaction, the initial accounting for the business combination is incomplete. Finite-lived intangible assets consist of customer relationships, permits, and noncompetition and nonsolicitation agreements. We are still in the process of obtaining and assessing the documentation of the contracts for customer relationships and detailed reports for structures, permits, easements, and accounts receivable; also, we are reviewing lease contracts for potentially favorable leases, asset retirement obligations, and other long-term liabilities.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 6.     BUSINESS ACQUISITIONS (Continued)

 

2018 Acquisitions (Continued)

 

Billboard Acquisitions (Continued)

 

Waitt Outdoor, LLC (Continued)

 

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.

 

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.

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Revenue

  $ 10,139,561     $ 8,181,142     $ 19,250,286     $ 16,195,469  
                                 

Net Loss Attributable to Common Stockholders

  $ (2,114,348 )   $ (2,793,947 )   $ (6,192,734 )   $ (6,059,179 )
                                 

Basic and Diluted Loss per Share

  $ (0.09 )   $ (0.15 )   $ (0.28 )   $ (0.34 )
                                 

Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding

    22,452,540       19,250,323       22,320,114       17,865,624  

 

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.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 7.     INTANGIBLE ASSETS

 

Intangible assets consist of the following:

 

   

June 30, 2019

   

December 31, 2018

 
           

Accumulated

                   

Accumulated

         
   

Cost

   

Amortization

   

Balance

   

Cost

   

Amortization

   

Balance

 
                                                 

Customer relationships

  $ 32,841,900     $ (13,458,753 )   $ 19,383,147     $ 32,638,900     $ (8,326,564 )   $ 24,312,336  

Permits, licenses, and lease acquisition costs

    9,621,521       (989,964 )     8,631,557       9,599,621       (559,285 )     9,040,336  

Site location

    849,347       (108,295 )     741,052       849,347       (80,216 )     769,131  

Noncompetition agreements

    616,000       (206,727 )     409,273       614,000       (145,517 )     468,483  

Trade names and trademarks

    722,200       (232,417 )     489,783       722,200       (195,417 )     526,783  

Technology

    138,000       (138,000 )     -       138,000       (122,657 )     15,343  

Nonsolicitation agreement

    28,000       (28,000 )     -       28,000       (28,000 )     -  

Favorable leases

    -       -       -       847,000       (35,291 )     811,709  

Easements

    1,810,463       -       1,810,463       1,088,413       -       1,088,413  
                                                 

Total

  $ 46,627,431     $ (15,162,156 )   $ 31,465,275     $ 46,525,481     $ (9,492,947 )   $ 37,032,534  

 

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

 

   

June 30,

                 
   

2020

   

2021

   

2022

   

2023

   

2024

   

Thereafter

   

Total

 
                                                         

Customer relationships

  $ 9,589,975     $ 8,460,912     $ 1,332,260     $ -     $ -     $ -     $ 19,383,147  

Permits, licenses, and lease acquisition costs

    869,732       869,732       869,732       869,732       869,732       4,282,897       8,631,557  

Site location

    56,623       56,623       56,623       56,623       56,623       457,937       741,052  

Noncompetition agreements

    122,675       106,700       94,200       74,365       11,333       -       409,273  

Trade names and trademarks

    67,933       64,900       64,900       64,900       64,900       162,250       489,783  
                                                         

Total

  $ 10,706,938     $ 9,558,867     $ 2,417,715     $ 1,065,620     $ 1,002,588     $ 4,903,084     $ 29,654,812  

 

Amortization expense for the six months ended June 30, 2019 and 2018 was $5,705,124 and $1,451,240, respectively.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 7.     INTANGIBLE ASSETS (Continued)

 

Future Amortization

 

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

 

Customer relationships

    21  

Permits, licenses, and lease acquisition costs

    119  

Site location

    157  

Noncompetition agreements

    40  

Trade names and trademarks

    58  

 

 

 

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

 

Short-term Investments

 

Short-term investments consist of certificates of deposit having maturity dates of less than twelve months and are carried at cost, U.S. Treasury securities and a corporate bond that are held to maturity and mature in less than twelve months. The certificates of deposit are held to maturity and mature in the upcoming year. The U.S. Treasury notes, the corporate bond, and the certificates of deposit are held primarily by UCS. For the six months ended June 30, 2019, gains on redemptions of U.S. Treasury notes held to maturity were $4,996.

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

Certificates of deposit

  $ 563,315     $ 1,378,666  

U.S. Treasury notes and corporate bond

    4,548,968       4,872,398  
                 

Total

  $ 5,112,283     $ 6,251,064  

 

Marketable Equity Securities

 

During the six months ended June 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.

 

Marketable equity securities as of June 30, 2019 are as follows:

 

   

Cost

   

Gross

Unrealized
Gain

   

Fair Value

 
                         

Marketable equity securities, June 30, 2019

  $ 11,934,888     $ 87,473     $ 12,022,361  

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 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:

 

           

Gross

         
           

Unrealized

   

Fair

 
   

Cost

   

Gain (Loss)

   

Value

 
                         

U.S. Treasury notes, June 30, 2019

  $ 85,056,102     $ (36,957 )   $ 85,019,145  
                         

U.S. Treasury notes, December 31, 2018

  $ 86,728,590     $ 116,796     $ 86,845,386  

 

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:

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

U.S. Treasury securities, held to maturity

  $ 2,504,769     $ 2,902,004  

Certificates of deposit

    -       317,178  

Preferred stock

    104,019       104,019  

Non-voting preferred units of Dream Finders Holdings, LLC

    12,000,000       -  

Non-voting common units of Dream Finders Holdings, LLC

    10,000,000       10,000,000  

Voting common stock of CB&T Holding Corporation

    19,058,485       19,058,485  
                 

Total

  $ 43,667,273     $ 32,381,686  

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 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 June 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 and real estate services. Our interest in these affiliates ranges from 7.15% to 30%. Two of the investments in affiliates, Logic Real Estate Companies, LLC and 24th Street Holding Company, LLC, having a combined carrying amount of $406,754 on June 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:

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
                 

Beginning of period

  $ 568,713     $ 952,128  

Additional investment in unconsolidated affiliate

    -       40,399  

Distributions received

    (203,382 )     (816,201 )

Loss on investment in affiliate

    -       (107,630 )

Equity in income of unconsolidated affiliates

    163,769       500,017  
                 

End of period

  $ 529,100     $ 568,713  

 

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 Six Months Ended June 30, 2019 and 2018

 

 

 

NOTE 9.     FAIR VALUE

 

At June 30, 2019 and December 31, 2018, our financial instruments included cash, cash equivalents, restricted cash, receivables, marketable equity securities, certain investments, and accounts payable. The fair values of cash, cash equivalents, restricted cash, receivables, and accounts payable approximated carrying values because of the short-term nature of these instruments. Marketable equity securities and U.S. Treasury securities available for sale are reported at fair values. Fair values for equity investments in private companies are not readily available, but are estimated to approximate fair value. 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

June 30, 2019

   

Quoted Prices
in Active
Markets for
Identical
Assets

   

Trading Gaines

and Losses

   

Total Changes
in Fair Values
Included in
Current Period
Earnings (Loss)

 
                                 

Marketable equity securities

  $ 12,022,361     $ 12,022,361     $ 415,572     $ 87,473  
                                 

Securities available for sale

    85,019,145       85,019,145       4,276       (36,957 )
                                 
                    $ 419,848     $ 50,516  

 

 

NOTE 10.     ASSET RETIREMENT OBLIGATIONS

 

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

 

Balance, December 31, 2018

  $ 1,824,419  

Additions

    1,294  

Accretion expense

    65,932  

Liabilities settled

    -  
         

Balance, June 30, 2019

  $ 1,891,645  

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

 

NOTE 11.     CAPITAL STOCK

 

On February 22, 2018, we entered into a Class A Common Stock Purchase Agreement, pursuant to which we agreed to issue and sell to three limited partnerships up to an aggregate of $150,000,000 in unregistered shares of Class A common stock at a price of $23.30, a slight premium to the closing price of shares of Class A common stock of $23.29 on the NASDAQ Capital Market, as reported by NASDAQ on the date of the Class A Common Stock Purchase Agreement. Two of the three limited partnerships are entities managed by The Magnolia Group, LLC, and the third limited partnership is an entity managed by Boulderado Group, LLC. The Class A Common Stock Purchase Agreement was approved by an independent special committee of our board of directors with the advice of independent legal counsel and an independent investment banking firm which provided a fairness opinion to the special committee. The closing of the first tranche of shares sold under the agreement occurred on March 6, 2018, consisting of a total of 3,300,000 shares resulting in total gross proceeds of $76,890,000. The closing of the second tranche of shares sold under the agreement occurred on May 15, 2018, consisting of the sale of 3,137,768 shares resulting in gross proceeds of approximately $73,110,000 and in aggregate gross proceeds from the private placement of approximately $150,000,000 in total.

 

Also in February 2018, we filed a shelf registration statement with the SEC allowing us to sell up to $200,000,000 of our securities. This registration statement was declared effective by the SEC on February 9, 2018. We subsequently entered into a Sales Agreement with Cowen and Company, LLC, which we refer to as “Cowen,” relating to the sale of shares of our Class A common stock to be offered. In accordance with the terms of the Sales Agreement, we may offer and sell from time to time up to $50,000,000 of shares of our Class A common stock through Cowen acting as our agent. Cowen is not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Cowen and us. The compensation to Cowen for sales of Class A common stock sold pursuant to the Sales Agreement will be an amount equal to 3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. From March 2018 through June 30, 2019, we sold through Cowen an aggregate of 1,789,226 shares of our Class A common stock under this “at the market” offering, resulting in gross proceeds to us of $41,852,539. For the six months ended June 30, 2019, we sold through Cowen 589,997 shares of our Class A common stock under the at-the-market offering, resulting in gross proceeds to us of $14,606,857 and net proceeds of $14,156,342 after offering costs of $450,515.

 

On May 4, 2018, we filed an amendment to our second amended and restated certificate of incorporation which increased our authorized shares of common stock. Our authorized capital stock now consists of 40,000,000 shares of common stock, of which 38,838,884 shares are designated as Class A common stock and 1,161,116 shares are designated as Class B common stock, and 1,000,000 shares of undesignated preferred stock.

 

As of June 30, 2019 there were 105,556 outstanding warrants for our Class B common stock and 784 outstanding warrants for our Class A common stock. On August 3, 2018, Boulderado Partners, LLC distributed 784 warrants for our Class B common stock, which converted to Class A common stock warrants upon distribution, in connection with a distribution in-kind to one of its withdrawing members. A summary of warrant activity for the six months ended June 30, 2019 is presented in the following table.

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 11.     CAPITAL STOCK (Continued)

 

   

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, 2018

    105,556     $ 9.95       6.5     $ 1,419,728  
                                 

Issued

    -                          

Exercised

    -                          

Expired

    -                          
                                 

Outstanding as of June 30, 2019

    105,556     $ 9.95       6.0     $ 1,393,339  

 

 

NOTE 12.     LEASES

 

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

 

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

 

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

 

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

 

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

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 12.     LEASES (Continued)

 

Operating Lease Cost

 

Operating lease cost for the six months ended June 30, 2019 are as follows:

 

   

Three Months

Ended
June 30, 2019

   

Six Months

Ended
June 30, 2019

 

Statement of Operations Classification

                   

Lease cost

  $ 1,471,077     $ 2,941,733  

Cost of billboard revenues and general and administrative

Variable and short-term lease cost

    260,189       589,678  

Cost of billboard revenues and general and administrative

                   

Total Lease Cost

  $ 1,731,266     $ 3,531,411    

 

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

 

   

Three Months

Ended
June 30, 2019

   

Six Months

Ended
June 30, 2019

 
                 

Cash payments for operating leases

  $ 1,590,549     $ 2,935,390  

New operating lease assets obtained in exchange for operating lease liabilities

  $ 321,194     $ 1,437,622  

 

Operating Lease Assets and Liabilities

 

   

June 30, 2019

 

Balance Sheet Classification

           

Lease assets

  $ 50,307,264  

Other Assets: Right of use assets

           

Current lease liabilities

  $ 3,390,314  

Current Liabilities: Lease liabilities

Noncurrent lease liabilities

    45,468,802  

Long-term Liabilities: Lease liabilities

           

Total Lease Liabilities

  $ 48,859,116    

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 12.      LEASES (Continued)

 

Maturity of Operating Lease Liabilities

 

   

June 30, 2019

 
         

2019

  $ 5,644,316  

2020

    5,451,275  

2021

    5,299,084  

2022

    5,057,938  

2023

    4,714,236  

Thereafter

    48,029,391  
         

Total lease payments

    74,196,240  

Less imputed interest

    25,337,124  
         

Present Value of Lease Liabilities

  $ 48,859,116  

 

 

As of June 30, 2019, our operating leases have a weighted-average remaining lease term of 16.97 years and a weighted-average discount rate of 4.88%.

 

The future minimum obligations under operating leases in effect as of December 31, 2018 having a noncancellable term in excess of one year as determined prior to the adoption of ASC 842 are as follows:

 

2019

  $ 4,495,984  

2020

    4,148,078  

2021

    3,824,585  

2022

    3,406,397  

2023

    3,287,293  

Thereafter

    19,047,366  
         

Total

  $ 38,209,703  

 

 

NOTE 13.     INDUSTRY SEGMENTS

 

This summary presents our current segments, as described below.

 

General Indemnity Group, LLC

 

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

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 13.     INDUSTRY SEGMENTS (Continued)

 

Link Media Holdings, LLC

 

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

 

                           

Total

 

Three Months Ended June 30, 2019

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Revenue

  $ 2,989,569     $ 7,149,992     $ -     $ 10,139,561  

Segment gross profit

    1,558,586       4,385,102       -       5,943,688  

Segment loss from operations

    (738,364 )     (1,513,728 )     (950,547 )     (3,202,639 )

Capital expenditures

    (194 )     551,596       -       551,402  

Depreciation and amortization

    295,248       3,422,446       -       3,717,694  

 

                      Total  

Three Months Ended June 30, 2018

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Revenue

  $ 1,290,490     $ 1,699,269     $ -     $ 2,989,759  

Segment gross profit

    1,025,818       856,482       -       1,882,300  

Segment loss from operations

    (1,204,432 )     (783,029 )     (516,230 )     (2,503,691 )

Capital expenditures

    2,549       1,181,656       -       1,184,205  

Depreciation and amortization

    316,086       681,533       -       997,619  

 

                           

Total

 

Six Months Ended June 30, 2019

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Revenue

  $ 5,319,904     $ 13,930,382     $ -     $ 19,250,286  

Segment gross profit

    2,603,199       8,454,095       -       11,057,294  

Segment loss from operations

    (2,056,378 )     (3,314,476 )     (2,619,735 )     (7,990,589 )

Capital expenditures

    37,761       1,397,179       -       1,434,940  

Depreciation and amortization

    611,310       6,798,219       -       7,409,529  

 

                           

Total

 

Six Months Ended June 30, 2018

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Revenue

  $ 2,563,244     $ 3,249,459     $ -     $ 5,812,703  

Segment gross profit

    2,085,708       1,683,838       -       3,769,546  

Segment loss from operations

    (2,247,811 )     (1,501,711 )     (1,496,560 )     (5,246,082 )

Capital expenditures

    10,031       1,758,989       -       1,769,020  

Depreciation and amortization

    641,220       1,445,427       -       2,086,647  

 

 

BOSTON OMAHA CORPORATION
and SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


For the Six Months Ended June 30, 2019 and 2018

 

 

NOTE 13.     INDUSTRY SEGMENTS (Continued)

 

Link Media Holdings, LLC

 

                           

Total

 

As of June 30, 2019

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Accounts receivable, net

  $ 1,520,186     $ 3,353,888     $ -     $ 4,874,074  

Goodwill

    8,719,294       89,966,501       -       98,685,795  

Total assets

    40,416,459       218,031,471       131,711,361       390,159,291  

 

                           

Total

 

As of December 31, 2018

 

GIG

   

LMH

   

Unallocated

   

Consolidated

 
                                 

Accounts receivable, net

  $ 1,075,399     $ 3,389,045     $ -     $ 4,464,444  

Goodwill

    8,719,294       89,966,501       -       98,685,795  

Total assets

    36,396,939       175,082,989       120,714,593       332,194,521  

 

 

NOTE 14.     CUSTODIAL RISK

 

As of June 30, 2019, we had approximately $9,200,000 in excess of federally insured limits on deposit with financial institutions.

 

 

NOTE 15.     SUBSEQUENT EVENTS

 

Subsequent to June 30, 2019 through July 31, 2019, we sold through Cowen an additional 334,751 shares of our Class A common stock, under the “at the market” Sales Agreement, resulting in net proceeds to us of $7,557,692 (See Note 11).

 

Subsequent to June 30, 2019, Boston Omaha Corporation invested approximately $29,000,000 in a marketable equity security using proceeds from maturing treasury investments.

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. We have based these forward-looking statements on our current intent, expectations and projections about future events, and these forward-looking statements are not guaranteed to occur and may not occur. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “intend,” “project,” “contemplate,” “potential,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. These statements are only predictions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission filings. 

 

THE OUTCOME OF THE EVENTS DESCRIBED IN THIS REPORT ALSO CONTAINS STATISTICAL AND OTHER INDUSTRY AND MARKET DATA RELATED TO OUR BUSINESS AND INDUSTRY THAT WE OBTAINED FROM INDUSTRY PUBLICATIONS AND RESEARCH, SURVEYS AND STUDIES CONDUCTED BY US AND THIRD PARTIES, AS WELL AS OUR ESTIMATES OF POTENTIAL MARKET OPPORTUNITIES. INDUSTRY PUBLICATIONS, THIRD-PARTY AND OUR OWN RESEARCH, SURVEYS AND STUDIES GENERALLY INDICATE THAT THEIR INFORMATION HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE ALTHOUGH THEY DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THIS MARKET DATA INCLUDES PROJECTIONS THAT ARE BASED ON A NUMBER OF ASSUMPTIONS. IF THESE ASSUMPTIONS TURN OUT TO BE INCORRECT, ACTUAL RESULTS MAY DIFFER FROM THE PROJECTIONS BASED ON THESE ASSUMPTIONS. AS A RESULT, OUR MARKETS MAY NOT GROW AT THE RATES PROJECTED BY THIS DATA, OR AT ALL. THE FAILURE OF THESE MARKETS TO GROW AT THESE PROJECTED RATES MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION AND THE MARKET PRICE OF OUR COMMON STOCK.

 

The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Any of the forward-looking statements that we make in this quarterly report on Form 10-Q and in other public reports and statements we make may turn out to be inaccurate as a result of our beliefs and assumptions we make in connection with the factors set forth above or because of other unidentified and unpredictable factors. IN ADDITION, OUR BUSINESS AND FUTURE RESULTS ARE SUBJECT TO A NUMBER OF FACTORS, INCLUDING THOSE FACTORS SET FORTH IN THE “risk factors” SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. We undertake no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. These risks could cause our actual results for 2019 and beyond to differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect our financial condition, liquidity and operating and stock price performance.

 

 

Overview

 

We are currently engaged in outdoor billboard advertising and surety insurance and related brokerage businesses. In addition, we hold minority investments in commercial real estate management and brokerage services, a bank focused on servicing the automotive loan market, and a homebuilding company with operations located primarily in the Southeast United States.

 

Billboards: We commenced our billboard business operations in June 2015 through acquisitions by our wholly-owned subsidiary Link Media Holdings, LLC, which we refer to as “Link”, of smaller billboard companies located in the Southeast United States and Wisconsin. As of June 30, 2018, we operated 479 billboard structures. During July and August 2018, we acquired the membership interests or assets of three larger billboard companies which increased our overall billboard count to approximately 2,900 billboards. These transactions include our acquisition on July 31, 2018 of Tammy Lynn Outdoor, LLC, which we refer to as “Tammy Lynn,” for cash and stock consideration, our acquisition on August 22, 2018 of substantially all of the assets of Key Outdoor, Inc., which we refer to as “Key,” for approximately $38 million, and our acquisition on August 31, 2018 of Waitt Outdoor, LLC, which we refer to as “Waitt,” for approximately $84 million. We believe that the acquisitions of Waitt and Key, with over 1,600 and 700 billboard structures, respectively, make us a leading outdoor billboard advertising company in the markets we serve in the Midwest. As of August 1, 2019, we operate approximately 2,900 billboards with approximately 5,400 advertising faces. One of our principal business objectives is to continue to acquire additional billboard assets through acquisitions of existing billboard businesses in the United States when they can be made at what we believe to be attractive prices relative to other opportunities generally available to us.

 

Surety Insurance: Our surety insurance business commenced in April 2016 with the acquisition of a surety insurance brokerage business with a national internet-based presence. In December 2016, we completed the acquisition of United Casualty & Surety Insurance Company, which we refer to as “UCS,” a surety insurance company, which at that time was licensed to issue surety bonds in only nine states. Since that time, we worked to grow the number of states in which UCS can issue surety bonds and, as a result, UCS is now licensed to issue surety insurance in all 50 states and the District of Columbia. In addition, over the last two years, we have also acquired several additional surety insurance brokerage businesses located in various regions of the United States.

 

Investments:

 

 

We have made a series of investments in the commercial real estate management, brokerage and related services business commencing in September 2015. We currently own 30% of Logic Real Estate Companies LLC, which we refer to as “Logic,” and approximately 49.9% of 24th Street Holding Company, LLC, both directly and indirectly through our ownership in Logic.

 

 

In late December 2017, we invested $10 million in 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. 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.

 

 

In May 2018, we invested, through one of our subsidiaries, approximately $19 million, through the purchase of common stock, of CB&T Holding Corporation, the privately held parent company of Crescent Bank & Trust, Inc., which we refer to as “Crescent.” Crescent is located in New Orleans and generates the majority of its revenues from indirect subprime automobile lending across the United States.

 

 

In each of our businesses, we hope to expand our geographic reach and market share and seek to develop a competitive advantage and/or brand name for our services, which we hope will be a differentiating factor for customers. Our insurance market primarily services small contractors, small- and medium-sized businesses and individuals that are required to provide surety bonds (1) in connection with their work for government agencies and others, (2) in connection with contractual obligations, or (3) to meet regulatory requirements and other needs. We have expanded the licensing of the UCS business to all 50 states and the District of Columbia. In outdoor advertising, our plan is to continue to grow this business through acquisitions of billboard assets. We also expect to continue to make additional investments in real estate management service businesses, as well as in other businesses. In the future, we expect to expand the range of services we provide in the insurance sector, seek to continue to expand our billboard operations and to possibly consider acquisitions of other businesses, as well as investments, in other sectors. Our decision to expand outside of these current business sectors we serve or in which we have made investments will be based on the opportunity to acquire businesses which we believe provide the potential for sustainable earnings at an attractive level relative to capital employed and, with regard to investment, we believe have the potential to provide attractive returns.

 

We seek to enter markets where we believe demand for our services will grow in the coming years due to certain barriers to entry and/or to anticipated long-term demand for these services. In the outdoor billboard business, government restrictions often limit the number of additional billboards that may be constructed. At the same time, advances in billboard technology provide the opportunity to improve revenues through the use of digital display technologies and other new technologies. In the surety insurance business, new insurance companies must be licensed by state agencies that impose capital, management and other strict requirements on these insurers. These hurdles are at the individual state level, with statutes often providing wide latitude to regulators to impose judgmental requirements upon new entrants. In addition, new distribution channels in certain areas of surety may provide a new opportunity. In the real estate management services market, we believe the anticipated continued growth of commercial real estate in many sections of the United States will provide opportunities for management services for the foreseeable future. We also believe our investment in both Crescent and DFH provides the opportunity for each company to significantly grow its business. Finally, we invest our available capital and the surplus capital from UCS in a wide range of securities, including equity securities of large cap public companies, various corporate and government bonds and U.S. treasuries.

 

How We Generate Our Revenues and Evaluate Our Business

 

We currently generate revenues primarily through billboard advertising and related services and from the sale of surety insurance and related brokerage activities.  Revenue for outdoor advertising space rental is recognized on a straight-line basis over the term of the contract and advertising revenue is reported net of agency commissions. Payments received in advance of being earned are recorded as deferred revenue. In our surety insurance business, premiums written are recognized as revenues based on a pro rata daily calculation over the respective terms of the policies in-force. Unearned premiums represent the portion of premiums written applicable to the unexpired term of the policies in-force. In connection with our surety agency business, insurance commissions are recognized at a point in time, on a bond-by-bond basis as of the policy effective date and are generally nonrefundable.

 

Segment gross profit is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments. We define segment gross profit as segment revenues less segment direct cost of services. In our billboard business, direct cost of services includes land leases, utilities, repairs and maintenance of equipment, sales commissions, contract services, and other billboard level expenses. In our surety business, direct cost of services includes commissions, premium taxes, fees, and assessments, and losses and loss adjustment expenses.

 

Results of Operations

 

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

 

The following is a comparison of our results of operations for the three months ended June 30, 2019, which we refer to as the “second quarter of fiscal 2019,” compared to the three months ended June 30, 2018, which we refer to as the “second quarter of fiscal 2018.” Our results for the second quarter of fiscal 2019 include the financial and operating results of Waitt, Key and Tammy Lynn, which we acquired subsequent to the second quarter of fiscal 2018. Therefore, comparisons of our results for the second quarter of fiscal 2019 to the second quarter of fiscal 2018 may not be meaningful.

 

 

Revenues. For the second quarter of fiscal 2019 and the second quarter of fiscal 2018, our revenues in dollars and as a percentage of total revenues were as follows:

 

   

For the Three Months Ended June 30,
(unaudited)

 
   

2019

   

2018

   

2019 vs 2018

 
   

Amount

   

As a % of

Total

Revenues

 

Amount

   

As a % of

Total

Revenues

 

$ Variance

 

Revenues:

                                       

Billboard rentals, net

  $ 7,149,992       70.5 %   $ 1,699,269       56.8 %   $ 5,450,723  

Premiums earned

    2,487,557       24.5 %     507,045       17.0 %