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This Report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or by Public Law 104-67. All statements included in this Report, other than statements that relate solely to historical fact, are “forward-looking statements.” Such statements include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events, including the impact of the COVID-19 pandemic, or any statement that may relate to strategies, plans or objectives for, or potential results of, future operations, financial results, financial condition, business prospects, growth strategy or liquidity, and are based upon management’s current plans and beliefs or current estimates of future results or trends. Forward-looking statements can generally be identified by phrases such as “believes,” “expects,” “potential,” “continues,” “may,” “should,” “seeks,” “predicts,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “could,” “designed,” “should be” and other similar expressions that denote expectations of future or conditional events rather than statements of fact.
Forward-looking statements include certain statements made under the caption, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under Item 7 of this Report, but also forward-looking statements that appear in other parts of this Report. Forward-looking statements reflect our current views with respect to future events and are based on certain assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from trends, plans, or expectations set forth in the forward-looking statements. These risks and uncertainties may include the risks and uncertainties described elsewhere in this Report, including under the caption “Risk Factors,” under Item 1A of this Report. Additionally, there may be other factors not presently known to us or which we currently consider to be immaterial that may cause our actual results to differ materially from the forward-looking statements.
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.
Some of the factors that could materially and adversely affect our financial condition, results of operations, cash flow, the market price of shares of our Class A common stock or our prospects include, but are not limited to, the following. You should read this summary together with the more detailed description of each risk factor contained in this Item 1A “Risk Factors” in this Annual Report on Form 10-K and the other reports and documents filed or furnished by us with the SEC for a more detailed discussion of the principal risks (as well as certain other risks) that you should carefully consider before deciding to invest in our securities.
PART I
Our Company
Boston Omaha Corporation, which we refer to as “the Company,” “our Company,” “we,” “us” or “our,” commenced its current business operations in June 2015 and currently operates three separate lines of business: outdoor billboard advertising, surety insurance and related brokerage activities and broadband services. 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.
Outdoor Billboards
In June 2015, we commenced our billboard business operations 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. During July and August 2018, we acquired the membership interest or assets of three larger billboard companies which increased our overall billboard count to approximately 2,900 billboards. In addition, we have made additional billboard acquisitions on a smaller scale since that date. We believe that we are a leading outdoor billboard advertising company in the markets we serve in the Midwest. As of March 26, 2021, we operate approximately 3,200 billboards with approximately 6,000 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.
We are attracted to the outdoor display market due to a number of factors, including high regulatory barriers to building new billboards in some states, growing demand, low maintenance capital expenditures for static billboards, low cost per impression for customers, and the potential opportunity to employ more capital in existing assets at reasonable returns in the form of perpetual easements and digital conversions. In addition, unlike other advertising industries, the internet has not had a material adverse impact on outdoor advertising revenues. Revenues for out-of-home advertising have continued to rise over the past several years, in contrast to print and other non-internet based advertising. The billboard industry’s three largest companies are estimated to account for more than 50% of the industry’s total revenues, and several industry sources and our experience suggest that there are a large number of other companies serving the remainder of the market, providing a potentially significant source of billboards which may be acquired in the future.
Surety Insurance
In September 2015, we established an insurance subsidiary, General Indemnity Group, LLC, which we refer to as “GIG,” designed to own and operate insurance businesses generally handling high volume, lower policy limit commercial lines of property and casualty insurance. In April 2016, our surety insurance business commenced 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 and 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 have expanded the licensing of the UCS business to all 50 states and the District of Columbia. In addition, over the last four years, we have also acquired additional surety insurance brokerage businesses located in various regions of the United States. We may in the future expand the reach of our insurance activities to other forms of insurance which may have similar characteristics to surety, such as high volume and low average policy premium insurance businesses which historically have similar economics.
Broadband Services
On March 10, 2020, our subsidiary FIF AireBeam LLC, which we refer to as “AireBeam,” acquired substantially all the business assets of FibAire Communications, LLC, which we refer to as "FibAire," a rural broadband internet provider. AireBeam provides over 7,000 subscribers in communities in southern Arizona with a high-speed fixed wireless internet service and is building an all fiber-to-the-home network in select Arizona markets. AireBeam operates in underserved communities in Arizona that need higher speed and greater internet capacity. On December 29, 2020, our subsidiary FIF Utah LLC, which we refer to as “FIF Utah,” and which conducts business as "Utah Broadband," acquired substantially all of the business assets of Utah Broadband, LLC, which we refer to as “UBB,” a rural internet provider in Utah. UBB provides high-speed internet services to over 10,000 subscribers through Salt Lake City, Park City, Ogden, Provo and surrounding communities.
Minority Investments
Since 2015, we have made minority investments in several different industries.
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Since September 2015, we have made a series of investments in commercial real estate, a commercial real estate management, brokerage and related services business as well as an asset management business. 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, which we refer to as "24th Street Holding Co.", both directly and indirectly through our ownership in Logic. In addition, we have invested, through one of our subsidiaries, an aggregate of $6 million in 24th Street Fund I, LLC and 24th Street Fund II, LLC. These funds are managed by 24th Street Asset Management, LLC, a subsidiary of 24th Street Holding Co. and will focus on opportunities within secured lending and direct investments in commercial real estate.
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In December 2017, we invested $10 million in 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. In addition to its homebuilding operations, DFH's subsidiaries provide mortgage loan origination and title insurance services to homebuyers. In May 2019, we invested, through one of our subsidiaries, an additional $12 million in DFH through the purchase of preferred units with a mandatory preferred return of 14%. These preferred units were subsequently redeemed by DFH in 2020. On January 25, 2021, Dream Finders Homes, Inc., a wholly owned subsidiary of DFH, completed its initial public offering and implemented an internal reorganization (the “DFH Merger”) pursuant to which Dream Finders Homes, Inc. became a holding company and sole manager of DFH. Upon completion of the DFH Merger, our outstanding common units in DFH were converted into 4,681,099 shares of Class A Common Stock of Dream Finders Homes, Inc., and one of our subsidiaries purchased an additional 120,000 shares of Class A common stock in DFH's initial public offering. The DFH shares purchased in 2017 are restricted securities and are subject to a lock-up for a period through July 19, 2021, and subject to limitations on the number of DFH shares we may sell under Rule 144. Prior to its initial public offering, we loaned DFH $20,000,000 to assist it in financing an acquisition which was consummated prior to its initial public offering. This loan was repaid in full with interest in early 2021.
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In May 2018, we invested, through one of our subsidiaries, approximately $19 million through the purchase of common stock of CB&T Holding Corporation, which we refer to as "CB&T," 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.
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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, owns approximately 20% of Yellowstone's issued and outstanding common stock. The purpose of the offering is 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. Yellowstone allows us to pursue a minority interest in larger companies in other industries without diluting the equity interests of our Boston Omaha shareholders. Yellowstone is currently focusing on acquisition candidates in the homebuilding, home materials, financial services and commercial real estate management industries but is also able to pursue acquisition opportunities in other industries. As of December 31, 2020, Yellowstone is consolidated within the financial statements included within this Form 10-K as we have concluded that Yellowstone is a Variable Interest Entity of which we are the primary beneficiary. As such, our investment in Yellowstone, consisting of the Class B common stock (Founders Shares) and private placement warrants, is eliminated in consolidation.
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Additional Opportunities for Growth
In addition to our activities in outdoor billboards, surety insurance, broadband services and the various industries in which we have made minority investments, we will also consider other industries which offer the potential for predictable and attractive returns on invested capital. We expect to continue to be opportunistic in exploring other opportunities which meet our investment criteria.
Our objective is to grow intrinsic value per share at an attractive rate by retaining capital to reinvest in the productive capabilities of our current subsidiaries, make opportunistic investments, and/or invest in new, anticipated durable earnings streams. Each of these options for capital will be compared to one another on a regular basis, and capital will be deployed according to our management’s judgment as to where it believes allocated capital has the potential to achieve the best long-term return.
Our History
Boston Omaha Corporation was originally incorporated as REO Plus, Inc., which we refer to as “REO,” on August 10, 2009 under the laws of the State of Texas. On March 16, 2015, we reincorporated as a Delaware corporation, adopted new bylaws and changed our name to Boston Omaha Corporation. Our principal business address is 1601 Dodge Street, Suite 3300, Omaha, Nebraska 68102, and our telephone number is 857-256-0079. We registered as a reporting company under the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” on November 9, 2016. In 2016, we were listed for trading on the OTCQX under the trading symbol “BOMN,” and in June 2017, in connection with our 2017 public offering, we transferred and uplisted to the NASDAQ Capital Market under the trading symbol “BOMN.”
On February 13, 2015, Magnolia Capital Fund, L.P., which we refer to as “MCF,” and Boulderado Partners, LLC, which we refer to as “BP,” acquired shares of the Company’s common stock representing approximately 95% of the Company’s issued and outstanding shares at the time. MCF is managed by The Magnolia Group, LLC, which we refer to as “Magnolia,” and BP is managed by Boulderado Capital, LLC and Boulderado Group, LLC, which we collectively refer to as “Boulderado.” Magnolia is managed by Adam K. Peterson, one of our Co-Chairmen and Co-Chief Executive Officers. Boulderado is managed by Alex B. Rozek, one of our Co-Chairmen and Co-Chief Executive Officers.
On June 18, 2015, we amended and restated our certificate of incorporation. As part of this amendment and restatement, we effected a 7:1 reverse stock split of our Class A common stock. We also created an additional series of our stock now named Class B common stock, par value $0.001 per share (the renaming of our classes of stock was accomplished through a charter amendment on May 25, 2017). 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. There are currently 1,055,560 shares of our Class B common stock outstanding, which shares are owned in equal amounts by each of MCF and BP.
Between February 2015 and May 2017, we raised $66,872,500 in equity financing, of which $43,305,577 and $11,305,595 were invested by MCF and BP, respectively. We raised these funds primarily in three separate rounds of financing, each of which coincided with pending or anticipated acquisitions.
In June 2017, pursuant to a Registration Statement on Form S-1 (File No. 333-216040) declared effective on June 15, 2017, we commenced a public offering for 6,538,462 shares of our Class A common stock at $13.00 per share, which we refer to as the “2017 public offering,” that raised gross proceeds of $97,049,446. Cowen and Company, LLC, which we refer to as “Cowen,” acted as the sole underwriter. In the 2017 public offering, MCF and BP invested $44,999,994 and $2,500,004, respectively. We received aggregate net proceeds from the offering of approximately $91,432,110 after deducting underwriting discounts and commissions and offering expenses payable by us.
On February 22, 2018, we entered into a Class A Common Stock Purchase Agreement, which we refer to as the “2018 private placement,” pursuant to which the Company agreed to issue and sell to Magnolia BOC I, LP, which we refer to as “MBOC I,” Magnolia BOC II, LP, which we refer to as “MBOC II,” and Boulderado BOC, LP, which we refer to as “BBOC,” $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. MBOC I and MBOC II are entities managed by Magnolia, and BBOC, which has distributed all of its shares of Class A common stock, was 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 a total of 3,137,768 shares resulting in total gross proceeds of approximately $73,110,000.
In February 2018, we filed a shelf Registration Statement on Form S-3 (File No. 333-222853) that was declared effective on February 9, 2018, 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 $200,000,000. On March 2, 2018, we entered into a Sales Agreement with Cowen, pursuant to which the Company sold from time to time in an “at the market” offering, a total of $49,999,625 of shares of Class A common stock through Cowen as sales agent. Sales under the “at the market” offering were made pursuant to a prospectus supplement, filed with the Securities and Exchange Commission, which we refer to as the “SEC” or the “Commission,” on March 2, 2018, to our shelf Registration Statement on Form S-3. Cowen received a commission equal to 3.0% of the gross sales proceeds of the shares sold through Cowen under the Sales Agreement, and we provided Cowen with customary indemnification and contribution rights.
On August 13, 2019, we entered into a second Sales Agreement with Cowen, relating to the sale of additional shares of our Class A common stock to be offered. In accordance with the terms of the second Sales Agreement, we could offer and sell from time to time up to $75,000,000 of shares of our Class A common stock through Cowen acting as our agent. The compensation to Cowen for sales of Class A common stock sold pursuant to the Sales Agreement was an amount equal to 3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. From August 21, 2019 through December 31, 2019, we sold through Cowen 448,880 shares of our Class A common stock under the second “at the market” offering, resulting in gross proceeds to us of $9,450,789 and net proceeds of $9,122,227, after offering costs of $328,562. During fiscal year 2020, we sold through Cowen 40,455 shares of our Class A common stock under the second “at the market” offering, resulting in gross proceeds to us of $669,751 and net proceeds of $649,659, after offering costs of $20,092. Following a public offering of our Class A common stock in May 2020, we subsequently suspended future sales under the Sales Agreement and the S-3 registration statement filed in February 2018, which then expired in February 2021. We anticipate filing a new shelf registration statement on Form S-3 shortly following the date of this Annual Report to allow us to raise additional capital through the sale of securities to help fund potential future acquisitions and investments in other business ventures.
On March 18, 2020, our Board of Directors authorized and approved a share repurchase program for us to repurchase up to $20,000,000 worth of shares of our Class A common stock, which we refer to as the “Repurchase Program.” Under the Repurchase Program, we may repurchase shares, from time to time, in solicited or unsolicited transactions in the open market, privately-negotiated transactions, or transactions pursuant to a Rule 10b5-1 plan. The Repurchase Program does not obligate us to purchase any particular number of shares and will run through the earlier of June 30, 2021, or our decision that the Repurchase Program is no longer consistent with our short-term and long-term objectives. Due to improving market conditions following our establishment of the Repurchase Program, we did not repurchase any shares during fiscal year 2020.
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, 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 in which we sold a total of 3,680,000 Class A 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 $58,880,000. 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. Although we do not have any binding material commitments at this time, we continue to pursue acquisitions in these markets. The shares were sold in the offering pursuant to the Company’s shelf registration statement on Form S-3, as supplemented by a prospectus supplement dated May 28, 2020.
Our Relationship with Magnolia and Boulderado
In their roles as general partners of MCF, MBOC I, MBOC II, and BP, Magnolia and Boulderado, through their ownership of Class A common stock and all of our Class B common stock, control a majority vote on all matters and will for the foreseeable future continue to be able to control the election of our directors, determine our corporate and management policies and determine, without the consent of our other stockholders, the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. Adam K. Peterson, our Co-Chief Executive Officer and one of our directors, is a principal in Magnolia and Alex B. Rozek, our other Co-Chief Executive Officer and a director of the Company, is a principal in Boulderado.
The interests of these funds managed by Magnolia and Boulderado may not coincide with the interests of other holders of our Class A common stock. Mr. Peterson and Mr. Rozek also receive compensation from Magnolia and Boulderado for their roles as managers of Magnolia and Boulderado, respectively. Additionally, these funds are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us.
MCF is a private investment partnership in Omaha, Nebraska, which commenced operations in August 2014. MBOC I and MBOC II are private investment partnerships in Omaha, Nebraska, which commenced operations in February 2018. Adam K. Peterson is the sole manager of Magnolia, an investment adviser registered with the SEC. Magnolia is the general partner and the manager of MCF, MBOC I and MBOC II. BP is a private investment partnership in Boston, Massachusetts, formed in June 2007. BBOC is a private investment partnership in Boston, Massachusetts, which commenced operations in February 2018. Alex B. Rozek is the Managing Member of Boulderado Group, LLC, the management company of Boulderado Partners, LLC and BBOC. On February 6, 2019, Alex B. Rozek and entities managed by Boulderado filed a Schedule 13D/A stating that BP has returned all outside capital and is continuing operations to manage family investments only. As a result of these distributions, BBOC distributed all of its shares of Class A common stock and was subsequently dissolved.
Our Acquisitions and Equity Investments
Since June 2015, we have expended over $280 million in the acquisition of businesses in outdoor billboard advertising, surety insurance and brokerage operations, broadband services, and in the purchase of minority equity interests in various businesses. We anticipate seeking further acquisitions in these business areas and possibly expanding into other businesses that we believe have the potential for durable profitability in a very competitive world.
Link Media Holdings. Since June 2015, through 18 acquisitions, several asset purchases, and one exchange, we have acquired numerous billboard structures, many with multiple faces, related easements, and rights in some instances to construct additional billboards. These billboards are located in Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia and Wisconsin. We paid a combined purchase price of over $190 million for these billboards and related assets. As of March 26, 2021, we operated approximately 3,200 billboard structures containing approximately 6,000 advertising faces, of which over 60 are digital displays.
General Indemnity. Since September 2015, through five acquisitions, we have acquired one insurance company, UCS, and four insurance brokerage firms. We paid a combined purchase price of approximately $19.4 million. Additionally, we have contributed approximately $16.3 million in statutory capital to UCS. UCS is authorized to issue surety insurance in all 50 states and the District of Columbia, is approved by the United States Department of Treasury, and rated "A-" (Excellent) by A.M. Best Company.
Broadband. On March 10, 2020, AireBeam acquired substantially all the business assets of FibAire, a rural broadband internet provider. AireBeam provides over 7,000 subscribers in communities in southern Arizona with a high speed fixed wireless internet service and is building an all fiber-to-the-home network in select Arizona markets. AireBeam currently operates in certain underserved Arizona communities that need higher speed and greater internet capacity. We acquired AireBeam for $12.3 million in cash and issued to FibAire’s co-founder and chief executive, 10% of the equity in the newly formed entity. On December 29, 2020, FIF Utah acquired substantially all of the business assets of UBB, a rural broadband internet provider. UBB provides high-speed internet to over 10,000 subscribers in Salt Lake City, Park City, Ogden, Provo and surrounding communities. We acquired UBB for $21.3 million in cash and issued to Alpine Networks, Inc., UBB’s member, 20% of the equity in the newly formed entity. Mr. McGhie, the president of Alpine Networks, Inc. will serve as president of FIF Utah.
Minority Investments. Since 2015, we have made minority investments in several different industries.
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Since September 2015, we have made a series of investments in commercial real estate, a commercial real estate management, brokerage and related services business as well as an asset management business. We currently own 30% of Logic and approximately 49.9% of 24th Street Holding Co., both directly and indirectly through our ownership in Logic. In addition, we have invested, through one of our subsidiaries, an aggregate of $6 million in 24th Street Fund I, LLC and 24th Street Fund II, LLC. These funds are managed by 24th Street Asset Management, LLC, a subsidiary of 24th Street Holding Co. and will focus on opportunities within secured lending and direct investments in commercial real estate.
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In late December 2017, we invested $10 million in common units of 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. In addition to its homebuilding operations, DFH's subsidiaries provide mortgage loan origination and title insurance services to homebuyers. In May 2019, we invested, through one of our subsidiaries, an additional $12 million in DFH through the purchase of preferred units with a mandatory preferred return of 14%. These preferred units were subsequently redeemed by DFH in 2020. On January 25, 2021, Dream Finders Homes, Inc., a wholly owned subsidiary of DFH, completed its initial public offering and implemented the DFH Merger pursuant to which Dream Finders Homes, Inc. became a holding company and sole manager of DFH. Upon completion of the DFH Merger, our outstanding common units in DFH were converted into 4,681,099 shares of Class A Common Stock of Dream Finders Homes, Inc., and one of our subsidiaries purchased an additional 120,000 shares of Class A common stock in the initial public offering. The DFH shares purchased in 2017 are restricted securities and are subject to a lock-up for a period through July 19, 2021 and currently subject to resale trading limitations under Rule 144 as we currently own more than 10% of DFH's Class A common stock. Prior to its initial public offering, we loaned DFH $20,000,000 to assist it in financing an acquisition which was consummated prior to its initial public offering. This loan was repaid in full with interest in early 2021.
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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. Crescent is located in New Orleans and generates the majority of its revenues from indirect subprime automobile lending across the United States.
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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 private placement warrants to purchase 7,719,779 shares of Class A common stock of Yellowstone. BOC Yellowstone is the sponsor of Yellowstone and under the terms of Yellowstone’s initial public offering completed in October 2020, which we refer to as the “Yellowstone IPO”, owns approximately 20% of Yellowstone’s issued and outstanding common stock. Following the Yellowstone IPO, BOC Yellowstone transferred 206,250 shares of Class B common stock to BOC Yellowstone II LLC, which we refer to as “BOC Yellowstone II”, and subsequently sold a membership interest in BOC Yellowstone II to an unaffiliated private investor in the initial public offering. This membership interest provides the investor the right to receive 206,250 of the Class B common shares held in BOC Yellowstone II upon release of the Class B common shares following a business combination. The investor paid $309,375 for its membership interest in BOC Yellowstone II. In the event that Yellowstone does not consummate a qualifying business combination on or before January 25, 2022, all Class A common stock sold in the initial public offering will be redeemed at $10.20 per share. As of December 31, 2020, Yellowstone is consolidated within the financial statements included within this Form 10-K as we have concluded that Yellowstone is a Variable Interest Entity of which we are the primary beneficiary. As such, our investment in Yellowstone, consisting of the Class B common stock (Founders Shares) and private placement warrants, is eliminated in consolidation.
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The key terms of the Yellowstone IPO as it relates to the Class B common stock and the private placement warrants acquired by BOC Yellowstone are as follows:
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Yellowstone's initial business combination must occur on or before January 25, 2022 with one or more target businesses that together have an aggregate fair market value of at least 80% of the net assets held in the trust account for the benefit of the holders of Yellowstone’s Class A common stock (excluding the deferred underwriting commissions and taxes payable on the income earned on the trust account) at the time of the agreement to enter into the initial business combination.
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Any party may co-invest with Yellowstone in the target business at the time of any initial business combination, or Yellowstone could raise additional proceeds to complete the acquisition by issuing to such parties a class of equity or equity-linked securities. We refer to this potential future issuance, or a similar issuance to other specified purchasers, as a “specified future issuance”. The amount and other terms and conditions of any such specified future issuance would be determined at the time thereof. Yellowstone is not obligated to make any specified future issuance and may determine not to do so.
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Any such specified future issuance would result in an adjustment to the conversion ratio such that BOC Yellowstone and BOC Yellowstone II’s initial stockholders would retain their aggregate percentage ownership at 20% of the sum of the total number of all shares of common stock outstanding upon completion of the Yellowstone IPO plus all shares issued in the specified future issuance, unless the holders of a majority of the then outstanding shares of Yellowstone’s Class B common stock agree to waive such adjustment with respect to the specified future issuance at the time thereof.
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The Yellowstone Class B common stock is identical to the shares of Class A common stock included in the units sold in the Yellowstone IPO, except that:
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the shares of Yellowstone Class B common stock automatically convert into shares of Yellowstone Class A common stock at the time of any initial business combination on a one-for-one basis, subject to adjustment pursuant to certain anti-dilution rights;
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the shares of Yellowstone Class B common stock are subject to certain transfer restrictions until the earlier to occur of: (A) one year after the completion of an initial business combination or (B) subsequent to an initial business combination, (x) if the last sale price of Yellowstone Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial business combination, or (y) the date on which Yellowstone completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Yellowstone stockholders having the right to exchange their shares of common stock for cash, securities or other property; and
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BOC Yellowstone and BOC Yellowstone II and their officers and directors have entered into a letter agreement with Yellowstone, pursuant to which they have agreed (i) to waive their redemption rights with respect to any Yellowstone Class B common stock and any Yellowstone public shares held by them in connection with the completion of an initial business combination and (ii) to waive their rights to liquidating distributions from the trust account with respect to any Yellowstone Class B common stock held by them if Yellowstone fails to complete an initial business combination by January 25, 2022;
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the Class A common stock into which the Class B common stock converts following a business combination has registration rights allowing the registration of the shares following a business combination. However, the registration rights agreement provides that Yellowstone will not permit any registration statement filed under the Securities Act to become effective until the securities covered thereby are released from their lock-up restrictions as described above.
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The 7,719,779 private placement warrants held by BOC Yellowstone were purchased at a price of $1.00 per whole warrant in a private placement that occurred simultaneously with the initial closing of the Yellowstone initial public offering. Each whole private placement warrant is exercisable for one whole share of Yellowstone Class A common stock at $11.50 per share. We have agreed that no officer or director of Boston Omaha Corporation will be eligible to receive any such warrants. These warrants will not, subject to certain limited exceptions, be transferable or saleable until 30 days after the completion of any business combination. The private placement warrants may also be exercised by BOC Yellowstone or its permitted transferees for cash or on a cashless basis. Otherwise, the private placement warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in Yellowstone’s IPO, including as to exercise price, exercisability and exercise period, and may be redeemed by Yellowstone for shares of Class A common stock. As of December 31, 2020, Yellowstone is consolidated within the financial statements included within this Form 10-K/A as we have concluded that Yellowstone is a Variable Interest Entity of which we are the primary beneficiary. As such, our private placement warrants as well as our Class B common stock are eliminated in consolidation.
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Industry Background
We currently operate outdoor billboard advertising services, provide broadband services, and sell surety insurance products and have made minority investments in several commercial real estate management and brokerage companies, a homebuilding company and a bank holding company focused on servicing the automotive loan market.
Outdoor Billboard Advertising. We currently own and operate approximately 3,200 billboard structures in the Southeast and Midwest United States containing approximately 6,000 advertising faces, of which over 60 are digital displays. In addition, we hold options to build additional billboards in a few of these states. Over 95% of our billboards reside on leased parcels of property. The site lease terms generally range from one to 20 years and often come with renewal options. Many of our leases contain options to extend the lease so as to allow continuous operation for many years or exist in areas where we believe that regulations make it probable a new lease will be signed prior to expiration on similar economic terms to existing leases. Bulletins are large, advertising structures consisting of panels on which advertising copy is displayed. On traditional billboards, the customer’s advertising copy is printed with computer-generated graphics on a single sheet of vinyl and wrapped around the billboard structure. Bulletins are usually located on major highways and target vehicular traffic. Advertising contracts are typically short-term to medium-term (e.g., one month to three years). We generally lease individually-selected bulletin space to advertisers for the duration of the contract. In addition to the traditional displays described above, we also have digital ad displays which generally come with shorter term ad contracts (one to twelve months). Outdoor billboards were estimated as a $4.7 billion market in the U.S. in 2020 based on industry trade journals. Other outdoor advertising solutions, including street furniture (for example, bus shelters and benches), transit and other new alternative advertising signs at sports stadiums, malls, airports and other locations account for approximately an additional estimated $1.4 billion in revenues in 2020 according to industry sources. There is no concentration of industries to which we lease billboard space.
Insurance Services. Suretyship insurance occurs when one party guarantees payment or performance by another party for an obligation or undertaking. Many obligations are guaranteed through surety bonds. Common types of surety bonds include commercial surety bonds and contract surety bonds. Suretyship is an integral part of the functioning of government and commerce. In many complex endeavors involving risk, a need exists to have a third party assure the performance or obligations of one party to another party. Surety companies are the “third parties” that provide such financial assurances in return for premium payments. Surety bonds are provided in government bidding and contracting processes as well as for individuals obtaining various government licenses and for individuals and businesses entering into apartment and office lease rentals. Various types of bonds are designed to insure that when a contractor bids on a project, and is awarded the project, that the project is completed for the amount of the bid, and that the contractors pay their subcontractors and suppliers.
Surety bonds are regulated by state insurance departments. Surety insurance companies operate on a different business model than traditional casualty insurance. Surety is designed to prevent a loss. Though some losses do occur, surety premiums do not contain large provisions for loss payment. The surety takes only those risks which its underwriting experience indicates are reasonable to assume based on its underlying experience. This service is for qualified individuals or businesses whose affairs require a guarantor. The surety views its underwriting as a form of credit, much like a lending arrangement, and places its emphasis on the qualifications of the prime contractor or subcontractor to fulfill its obligations successfully, examining the contractor’s credit history, financial strength, experience, work in progress and management capability. After the surety assesses such factors, it makes a determination as to the appropriateness and the amount, if any, of surety credit.
Surety insurers are highly regulated and scrutinized, through legal requirements for regular financial, market conduct and operational audits, and other means, in order to conduct business in the estimated $6.9 billion surety market, based on 2019 industry reports. Most surety companies, in turn, distribute surety bonds through licensed surety bond producers, licensed business professionals who have specialized knowledge of surety products, the surety market, and the business strategies and underwriting differences among sureties. A bond producer can serve as an objective, external resource for evaluating a construction firm’s capabilities and, where necessary, can suggest improvements to help the construction firm meet a surety company’s underwriting requirements. Bond producers compete based on their experience, reputation, and ability to issue bonds on behalf of sureties. In addition to acquiring UCS, we have acquired four surety brokerage firms, The Warnock Agency, Inc., which we refer to as “Warnock,” Surety Support Services, Inc., which we refer to as “SSS,” Freestate Bonds, Inc., which we refer to as “Freestate,” and South Coast Surety Insurance Services, LLC, which we refer to as “SCS.” UCS and these brokerage firms provide us with both premium and commission revenue streams.
Broadband Services. Our AireBeam and Utah Broadband businesses provide fiber connectivity to homes, business and community organizations in certain markets in Arizona and Utah. Driven by the rising demand for higher bandwidth and faster speed connections for a variety of industrial and residential purposes, fiber optic transmission is becoming more and more common in modern society. Fiber optic cables have a much greater bandwidth than metal cables. The significantly higher amount of information that can be transmitted per unit time of fiber over other transmission media is its most significant advantage. Also, an optical fiber offers low power loss, which allows for longer transmission distances. Fiber optic is generally less susceptible to electromagnetic interference, has greater capacity and weighs less than traditional metal wire connections. Also, fiber optic is made of glass, which can provide certain cost advantages over traditional copper wire. Optical fiber is more difficult and expensive to install than copper wire and special equipment is required to test optical fiber. Fiber optic is also highly susceptible to becoming cut or damaged during installation or construction activities. We believe that the demand for broadband services has increased significantly since the COVID pandemic began and that this demand will continue to grow as more businesses and consumers rely on remote connectivity for work, learning, telehealth and other connectivity needs and as new technologies expand the ability to digitally share information and services.
Business Overview and Strategy
Since present management took over in February 2015, we have engaged in (i) acquisitions and minority investments in outdoor billboard advertising, surety insurance, broadband service providers, commercial real estate services, homebuilding and a bank holding company, (ii) purchases of publicly traded equity securities and (iii) in October 2020 served as the sponsor for an initial public offering for Yellowstone. Our strategy focuses on investing in companies and lines of business that have consistently demonstrated earnings power over time, with attractive pre-tax historical returns on tangible equity capital, and that we believe are available at a reasonable price.
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Since present management took over in 2015 and as of December 31, 2020, our acquisitions and operations have been funded by equity investments, including our 2017 public offering, our two “at the market” offerings and our 2020 public offering pursuant to our shelf registration statement, private placements, and debt conversions totaling $423,648,471.
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In addition, in August 2019, our Link subsidiary entered into a bank term loan and revolving credit agreement under which Link and its subsidiaries borrowed $18,060,000 secured by the assets of Link and its subsidiaries and may borrow additional sums under the agreement. In August 2020, additional sums in the amount of $5,500,000 were committed under the loan agreement.
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We have used a portion of these proceeds from these financings to acquire outdoor billboard assets in Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia and Wisconsin. We expect to continue to seek additional acquisitions in out-of-home advertising when they can be made at what we believe to be attractive prices relative to other opportunities generally available to us. We believe the billboard business offers the potential to provide a durable and growing cash flow stream over time. In addition, we believe multiple opportunities could exist in time for the industry at large including but not limited to: supply limitations, demand growth, opportunity to convert static billboard faces to digital applications when the economics are favorable, opportunity to purchase perpetual easements or land beneath our structures, and the low relative cost per impression of the advertising medium.
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We have also used the proceeds of these financings to organize GIG and to complete the acquisitions of Warnock, SSS, Freestate, and SCS, all surety insurance brokerage firms, and to complete the acquisition of UCS, a surety insurance company.
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In March 2020, we acquired substantially all of the assets of FibAire, a broadband service provider located in Arizona, and in December 2020 we acquired substantially all of the assets of UBB, a broadband service provider located in Utah.
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To date, we have invested $19 million in the parent company of Crescent, a bank providing retail and business banking services in the subprime automobile lending market.
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We have previously invested $22 million in equity financing in DFH, of which $12 million was in preferred stock which was redeemed in 2020. DFH is a national homebuilder that also provides related services and completed an IPO in January 2021.
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We have also made an investment in a commercial real estate management services company headquartered in Las Vegas, Nevada, a related real estate asset management company, and shorter-term investments in a Nevada company that invests in commercial retail centers and two residential real estate development projects in Colorado.
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In 2020, we sponsored and invested approximately $7.8 million in Yellowstone, a special purpose acquisition company, or "SPAC" dedicated to pursuing 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.
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In addition, from time to time, we invest a portion of our available cash in public equity securities and shorter term debt securities. In addition to our existing business lines, we are actively reviewing opportunities to acquire businesses in new fields which have the potential to provide durable revenues, broad customer bases and where ideally the target's business benefits from some business, legal or financial barriers to entry from future competitors.
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We source acquisitions both internally via phone calls, research or mailings, business relationships developed over time and also by receipt of target acquisition opportunities from a number of brokers and other professionals. We seek acquisitions consistent with our growth strategy, but there can be no assurance that we will consummate acquisitions pursuant to outstanding letters of intent or acquire any additional billboard assets, surety brokerage firms, broadband service providers, or minority investments in any other businesses. Furthermore, our acquisitions are subject to a number of risks and uncertainties, including as to when, whether and to what extent the anticipated benefits and cost savings of a particular acquisition will be realized. We are also seeking opportunities to acquire other businesses or a significant interest in existing businesses. We look to acquire businesses in their entirety that have consistently demonstrated earnings power over time, with attractive pretax historical returns on tangible equity capital, and that are available at a reasonable price. However, we may consider minority positions and stock issuances when the economics are favorable. In certain circumstances, we may enter lines of business directly when the opportunities and economics of doing so are favorable in comparison to acquisitions.
Outdoor Billboard Advertising. We seek to capitalize on our growing network and diversified geographical and product mix to grow revenues. We currently own approximately 3,200 billboard structures containing approximately 6,000 advertising faces in Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia and Wisconsin. Each of our billboard structures may have one to four faces. We believe the outdoor advertising business offers attractive industry fundamentals which we hope to utilize and leverage as we plan to continue to grow our presence in the United States. We hope that our growing presence will be an attractive tool in identifying and attracting both local and national advertisers. We work with our customers to enable them to better understand how our billboards can successfully reach their target audiences and promote their advertising campaigns. Our long-term strategy for our outdoor advertising businesses includes pursuing digital display opportunities where appropriate, while simultaneously utilizing traditional methods of displaying outdoor advertisements, and with a goal of consolidating fragmented markets where applicable.
Digital displays offer the opportunity to link electronic displays through centralized computer systems to instantaneously and simultaneously change advertising copy on a large number of displays. The ability to change copy by time of day and quickly change messaging based on advertisers’ needs creates additional flexibility for our customers. However, digital displays require more capital to construct and maintain compared to traditional bulletins and increase the supply of advertising faces in a market. We currently deploy over 60 digital billboards.
Our local production staffs provide many of our customers a range of services required to create and install advertising copy. Production work includes creating the advertising copy design and layout, coordinating its printing with outside printing firms and installing the copy on the billboard face. We provide creative services to smaller advertisers and to advertisers not represented by advertising agencies. National advertisers often use preprinted designs that require only installation. Our creative and production personnel typically develop new designs or adapt copy from other media for use on our inventory. Our creative staff also can assist in the development of marketing presentations, demonstrations, and strategies to attract new clients.
We typically own the physical structures on which our clients’ advertising copy is displayed. We acquire new structures from third parties on sites we either lease or own or for which we have acquired permanent easements. We generally have limited or no responsibilities to maintain the land on which the billboard is sited. The site lease terms generally range from one to 20 years and often come with renewal options or exist in areas where we believe that regulations make it probable a new lease will be signed prior to expiration on similar economic terms to existing leases. In addition to the site lease, we must obtain a permit to build and operate the sign. Permits are typically issued in perpetuity by the state or local government and typically are transferable or renewable for a minimal or no fee. Traditional bulletin and poster advertising copy is printed with computer generated graphics to form a single sheet of vinyl. These advertisements are then transported to the site and wrapped around the face of the structure. Our billboard lease costs in
2020 and
2019 were $6,119,523
and $
6,238,827, respectively.
Insurance Operations. UCS has specialized in providing surety bonds since 1989. UCS is an authorized insurance carrier rated A- (“Excellent”) by A.M. Best and is approved by the United States Department of the Treasury (570 Circular). UCS is currently licensed to conduct business in all 50 states and the District of Columbia. In addition to issuing traditional construction bonds for contractors and subcontractors, UCS offers a wide array of miscellaneous, license and permit bonds that protect consumers from the business activities of our customers or provide assurance to counterparties that our insureds will fulfill licensure requirements or faithfully remit monies owed. We also operate SCS and Warnock, brokers with clients nationwide, and SSS, another surety insurance brokerage with clients concentrated in several Midwestern states.
We seek to reduce our risk by limiting policy amounts, following extensive underwriting processes, reviewing dashboards of critical metrics, and purchasing reinsurance coverage. Our underwriting process considers a number of factors, including the financial health of the customer, the customer’s operating history, the type of obligation, the geographic territory where the contract is being issued, the language of the bond and the subject contract, and, if appropriate, a customer’s pledge of collateral to reduce the risk in the event of a default. Historically, claims on surety bonds are limited by the extensive underwriting analysis undertaken before a risk is agreed to, forms of security provided upon the bond’s issuance, and by the legal ability to pursue the customer obtaining the surety bond for recovery of amounts paid due to a claim. A significant portion of our business in 2019 and 2020 was selling bonds securing rental payments due to landlords, primarily in the greater New York city area. Due to the COVID-19 pandemic, we suspended issuing these surety bonds and increased our loss reserves for potential claims. A surety’s right of indemnification contrasts with property and casualty, or life insurance coverages, where no such recovery right exists. Unlike other insurance, surety insurance losses are commonly limited by the indemnity obligations of the insured, collateral provided by the insured at the time of issuance, or the insurance company’s contractual right to uncollected funds from construction projects on which it has issued a bond and steps in for the insured.
Broadband Services. We seek to capitalize on the growing demand for rural internet access and increased bandwidth capacity as the economy shifts towards increased consumer demand and telecommuting work arrangements. AireBeam and Utah Broadband operate in several underserved communities in Arizona and Utah that need higher speed and greater internet capacity. Our strategy is to grow our presence in the rural broadband business as we expect many more communities to demand increasingly more bandwidth to their homes and businesses than their current service offering can reliably provide. Within certain markets, we believe that fiber-to-the-home has the potential to be a long-lived asset that fits into our objective to invest in what we believe are durable businesses that have the potential to achieve favorable after-tax returns on invested capital. Recent studies suggest that a large proportion of homes in the United States have not connected to high speed broadband services as their communities lack all-fiber connectivity. We believe that the combination of the rural broadband business models of FibAire and Utah Broadband we acquired together with our stronger balance sheet provides a competitive platform to bring fiber-to-the-home to additional communities in Arizona and Utah and other similarly situated communities in other states. We have already entered into a contract with one home builder to bring fiber-to-the-home in a large residential development under construction and expect to expand this to other developments in the future. We believe that the fiber-to-the-home market shares similar qualities with our billboard and surety insurance markets in providing a diversified customer base in markets which impose some obstacles to competitors. We also believe that many broadband systems are owned by a significant number of small operators which may be interested in being acquired, providing us the potential for continued future growth in the broadband internet provider market.
Competition
Outdoor Billboard Advertising. The outdoor advertising industry in the United States consists of several large companies, and three companies, Clear Channel Outdoor Holdings, Inc., Outfront Media, Inc. and Lamar Advertising Company, own a majority of all outdoor billboards. These companies are estimated to generate more than 50% of the industry’s total revenues and several industry sources estimate that there are many other smaller companies serving the remainder of the market, providing a potentially significant source of billboards which may be acquired in the future. Part of our strategy is to acquire certain of the smaller and medium sized competitors in markets we deem desirable to advertisers. We also compete with other advertising media in our respective markets, including broadcast and cable television, radio, print media, direct mail, online and other forms of advertisement. Outdoor advertising companies compete primarily based on their ability to reach consumers, which is driven by location of the display.
Insurance Operations. Our insurance business operates in an environment that is highly competitive and very fragmented. We compete with other global insurance and reinsurance providers, including but not limited to Travelers, Liberty Mutual, Zurich Insurance Group, Lloyds, and CNA Insurance Group, as well as numerous specialist, regional and local firms in almost every area of our business. These companies may market and service their insurance products through intermediaries, or directly without the assistance of brokers or agents. We also compete with other businesses that do not fall into the categories above that provide risk-related services and products.
Broadband Services. Our broadband services businesses provide high-speed internet connectivity and are aimed at rural and other underserved communities that need higher speed and greater internet capacity. In the future, leading cable operators, such as Comcast, Charter Communications and Altice USA, and other competitors may seek to enter the markets we serve. In addition, we may face competition from 5G in the home and other services incorporating new technologies. Technological changes are further intensifying and may challenge existing business models. Our internet services are expected to compete with wireless phone companies, satellite and other broadband providers as well as wireline phone companies and other providers of wireline internet service and others seeking to build fiber-based network infrastructure.
Employees
As of March 1, 2021, we had 217 employees, of which 87 were in billboard operations, 86 were in broadband operations, 39 were in insurance services and five were in administrative or corporate related activities. Of the 217 employees, three employees in broadband operations and one employee in administrative or corporate related activities were part time. The rest of our employees were full time. None of our employees are subject to collective bargaining agreements. We believe that our relationship with our employees is good.
Information Systems
We rely on our information systems to manage our daily business activities, interact with customers and vendors, manage our digital billboard displays, and market our services. We have outsourced certain technology and business process functions to third parties and may increasingly do so in the future. We have also hired individuals responsible for maintaining and improving our information systems and for developing systems to protect both our information and that of our customers. In order to reduce the risk of unintended disclosure of customer information, our separate business groups operate different information systems for their customer interactions. Our outsourcing of certain technology and business process functions to third parties and our reliance on our use of our information systems may expose us to increased risk related to data security, service disruptions or the effectiveness of our control system. We also maintain certain levels of insurance designed to provide some coverage in the event of any damages arising from a breach of our computer security systems.
Regulation of Our Advertising Business
The outdoor advertising industry in the United States is subject to governmental regulation at the federal, state and local levels. These regulations may include, among others, restrictions on the construction, repair, maintenance, lighting, upgrading, height, size, spacing and location and permitting of and, in some instances, content of advertising copy being displayed on outdoor advertising structures. We generally do not incur material costs related to compliance with environmental laws in our advertising business.
From time to time, legislation has been introduced attempting to impose taxes on revenue from outdoor advertising or for the right to use outdoor advertising assets. Several jurisdictions have imposed such taxes as a percentage of our outdoor advertising revenue generated in that jurisdiction. In addition, some jurisdictions have taxed our personal property and leasehold interests in advertising locations using various valuation methodologies. In certain circumstances, such as our current Tampa operations, when we lease space from a governmental authority, we may enter into revenue sharing agreements with the authority, and in other circumstances we will manage third party billboards in connection with revenue sharing agreements. We expect jurisdictions to continue to try to impose such taxes and other fees as a way of increasing revenue. In recent years, outdoor advertising also has become the subject of targeted taxes and fees. These laws may affect prevailing competitive conditions in our markets in a variety of ways. Such laws may reduce our expansion opportunities or may increase or reduce competitive pressure from other members of the outdoor advertising industry. No assurance can be given that existing or future laws or regulations, and the enforcement thereof, will not materially and adversely affect the outdoor advertising industry.
In the United States, federal law, principally the Highway Beautification Act, which we refer to as the “HBA,” regulates outdoor advertising on Federal-Aid Primary, Interstate and National Highway Systems roads within the United States, which we refer to as “controlled roads.” The HBA regulates the size and placement of billboards, requires the development of state standards, mandates a state’s compliance program, promotes the expeditious removal of illegal signs and requires just compensation for takings.
To satisfy the HBA’s requirements, all states have passed billboard control statutes and regulations that regulate, among other things, construction, repair, maintenance, lighting, height, size, spacing and the placement and permitting of outdoor advertising structures. We are not aware of any state that has passed control statutes and regulations less restrictive than the prevailing federal requirements on the federal highway system, including the requirement that an owner remove any non-grandfathered, non-compliant signs along the controlled roads, at the owner’s expense and without compensation. Local governments generally also include billboard control as part of their zoning laws and building codes regulating those items described above and include similar provisions regarding the removal of non-grandfathered structures that do not comply with certain of the local requirements.
As part of their billboard control laws, state and local governments regulate the construction of new signs. Some jurisdictions prohibit new construction, some jurisdictions allow new construction only to replace or relocate existing structures and some jurisdictions allow new construction subject to the various restrictions discussed above. In certain jurisdictions, restrictive regulations also limit our ability to relocate, rebuild, repair, maintain, upgrade, modify or replace existing legal non-conforming billboards.
U.S. federal law neither requires nor prohibits the removal of existing lawful billboards, but it does mandate the payment of compensation if a state or political subdivision compels the removal of a lawful billboard along the controlled roads. In the past, state governments have purchased and removed existing lawful billboards for beautification purposes using federal funding for transportation enhancement programs, and these jurisdictions may continue to do so in the future. From time to time, state and local government authorities use the power of eminent domain and amortization to remove billboards. Amortization is the required removal of legal non-conforming billboards (billboards which conformed with applicable laws and regulations when built, but which do not conform to current laws and regulations) or the commercial advertising placed on such billboards after a period of years. Pursuant to this concept, the governmental body asserts that just compensation is earned by continued operation of the billboard over that period of time. Although amortization is prohibited along all controlled roads, amortization has been upheld along non-controlled roads in limited instances where permitted by state and local law.
We may expand the deployment of digital billboards in markets and in specific locations we deem appropriate and where the placement of these digital displays is permitted by government agencies regulating their locations. We are aware of some existing regulations in the U.S. that restrict or prohibit these types of digital displays. However, since digital technology for changing static copy has only recently been developed and introduced into the market on a large scale, and is in the process of being introduced more broadly, existing regulations that currently do not apply to digital technology by their terms could be revised to impose greater restrictions. These regulations, or actions by third parties, may impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.
Regulation of Our Insurance Business
GIG and its subsidiaries transact their insurance business in all 50 U.S. states and the District of Columbia and are subject to regulation in the various states and jurisdictions in which they operate. The extent of regulation varies, but generally derives from statutes that delegate regulatory, supervisory and administrative authority to a department of insurance in each state and jurisdiction. The regulation, supervision and administration relate, among other things, to standards of solvency that must be met and maintained, the licensing of insurers and their agents, the nature of and limitations on investments, premium rates, restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of policyholders, approval of policy forms and the regulation of market conduct, including the use of credit information in underwriting as well as other underwriting and claims practices. State insurance departments also conduct periodic examinations of the financial condition and market conduct of insurance companies and require the filing of financial and other reports on a quarterly and annual basis. Nebraska, the state of domicile for UCS, may also limit the payment of dividends from UCS to GIG and us and, as a result, to our stockholders if and when we declare a dividend from the operations of UCS and/or GIG and its other operating subsidiaries.
GIG and its subsidiaries and/or certain of our designated employees must be licensed to act as agents, brokers and intermediaries by state regulatory authorities in the locations in which we conduct business. Regulations and licensing laws vary by individual state location and are often complex. The applicable licensing laws and regulations in all states are subject to amendment or reinterpretation by regulatory authorities, and such authorities are vested in most cases with relatively broad discretion as to the granting, revocation, suspension and renewal of licenses. We endeavor to monitor the licensing of GIG, its subsidiaries and our employees, but the possibility exists that GIG and its subsidiaries and/or certain of our designated employees could be excluded or temporarily suspended from carrying on some or all of our activities in, or could otherwise be subjected to penalties by a particular jurisdiction.
Rate and Rule Approvals. GIG’s domestic insurance subsidiaries are subject to each state’s laws and regulations regarding rate, form, and rule approvals. The applicable laws and regulations generally establish standards to ensure that rates are not excessive, inadequate, unfairly discriminatory or used to engage in unfair price competition. An insurer’s ability to adjust rates and the relative timing of the process are dependent upon each state’s requirements. Many states have enacted variations of competitive ratemaking laws, which allow insurers to set certain premium rates for certain classes of insurance without having to obtain the prior approval of the state insurance department.
Requirements for Exiting Geographic Markets and/or Canceling or Nonrenewing Policies. Several states have laws and regulations which may impact the timing and/or the ability of an insurer to either discontinue or substantially reduce its writings in that state. These laws and regulations typically require prior notice, and in some instances insurance department approval, prior to discontinuing a line of business or withdrawing from that state, and they allow insurers to cancel or non-renew certain policies only for certain specified reasons.
Insurance Regulatory Information System. The National Association of Insurance Commissioners, which we refer to as “NAIC,” developed the Insurance Regulatory Information System, which we refer to as “IRIS,” to help state regulators identify companies that may require regulatory attention. Financial examiners review annual financial statements and the results of key financial ratios based on year-end data with the goal of identifying insurers that appear to require immediate regulatory attention. Each ratio has an established “usual range” of results. A ratio result falling outside the usual range, however, is not necessarily considered adverse; rather, unusual values are used as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusual for financially sound companies to have several ratios with results outside the usual ranges. Generally, an insurance company may become subject to regulatory scrutiny or, depending on the company’s financial condition, regulatory action if certain of its key IRIS ratios fall outside the usual ranges and the insurer’s financial condition is trending downward.
Risk-Based Capital Requirements. The NAIC has a risk-based capital, which we refer to as “RBC,” requirement for most property and casualty insurance companies, which determines minimum capital requirements and is intended to raise the level of protection for policyholder obligations. UCS is subject to these NAIC RBC requirements based on laws that have been adopted by individual states. These requirements subject insurers having policyholders’ surplus less than that required by the RBC calculation to varying degrees of regulatory action, depending on the level of capital inadequacy.
Investment Regulation. Insurance company investments must comply with applicable laws and regulations which prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments in federal, state and municipal obligations, corporate bonds, certain preferred and common equity securities, mortgage loans, real estate and certain other investments, subject to specified limits and certain other qualifications. If certain investments fail to meet these criteria, these investments may be excluded or limited in calculating our compliance in meeting these and other testing criteria.
Regulation of Our Broadband Business
Many but not all of our services and networks are regulated by the Federal Communications Commission, which we refer to as the “FCC”, and by state and local governments. Whether our networks or our services are regulated or unregulated depends on numerous factors, including but not limited to whether we offer telecommunications service, as defined in state and federal laws, or cable service. The construction and maintenance of our fiber optic networks may face local regulation that can adversely impact the timing or our deployment. Certain of our services that are provided via wireless transmission require FCC licenses and our local video and other services often require local government franchises, which we refer to as "franchises." The local franchises often impose certain obligations to build out the network and require payment of fees to the local government, which fees are often are based on a percentage of gross revenues. In private communities and mobile home parks, we may be required to obtain the consent of the homeowners association or other property owners to provide services, and we often have to pay a fee to obtain access to the property and provide our services. Finally, to deploy our networks, we frequently must obtain agreements from local power utilities to use their poles and in some cases easements from landowners.
Acquisition and Financing Strategy
Acquisition Selection. Our management will have broad discretion in identifying and selecting prospective target acquisitions. In evaluating a prospective target acquisition, our management will consider, among other factors, the following:
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Management’s understanding of the business and its competitive environment;
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Management’s view of the business durability, capital intensity, and prospective returns on the capital employed over time;
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Management’s assessment of the financial attractiveness of a particular target relative to other available targets; and
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Capital requirements and management’s assessment of the ability to finance a particular target.
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Issuance of senior and additional securities. To the extent that our Board of Directors determines to obtain additional capital, it may issue debt or equity securities. Existing stockholders have no preemptive rights to common or preferred stock issued in any securities offering by us, and any such offering might cause a dilution of a stockholder’s investment in our Company.
In June 2017, pursuant to a Registration Statement on Form S-1 (File No. 333-216040) declared effective on June 15, 2017, we commenced the 2017 public offering for 6,538,462 shares of our Class A common stock at $13.00 per share that raised gross proceeds of $97,049,446. Cowen acted as the sole underwriter and received a discount of 4.4853% per share. We also granted Cowen a 30-day option to purchase up to an additional 980,769 shares of Class A common stock, pursuant to which an additional 926,880 shares were sold. We received aggregate net proceeds from the offering of approximately $91,432,110 after deducting underwriting discounts and commissions and offering expenses payable by us. None of the underwriting discounts and commissions or offering expenses were incurred or paid to any director or officer of ours, to any of their associates, to persons owning 10% or more of our common stock or to any affiliates of ours.
On February 22, 2018, we entered into a Class A Common Stock Purchase Agreement, pursuant to which the Company sold to MBOC I, MBOC II, and BBOC $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. 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 a total of 3,137,768 shares resulting in total gross proceeds of approximately $73,110,000. Commencing in February 2021, the limited partners of these funds may begin to have their shares registered on a demand and/or piggyback basis, for resale or receive shares held in these funds as a distribution.
Additionally, in February 2018, we filed a shelf Registration Statement on Form S-3 (File No. 333-222853) that was declared effective on February 9, 2018, relating to the offering of Class A common stock, preferred stock, debt securities and warrants of the Company for up to $200,000,000. On March 2, 2018, the Company entered into a Sales Agreement with Cowen, pursuant to which the Company sold from time to time in an “at the market” offering a total of $49,999,625 of shares of Class A common stock through Cowen as sales agent. Sales under the “at the market” offering were made pursuant to a prospectus supplement, filed with the SEC on March 2, 2018, to the Company’s shelf Registration Statement on Form S-3, declared effective by the SEC on February 9, 2018. This shelf registration statement recently expired and we expect to shortly file a new shelf registration statement to access capital on an as needed basis.
From March 2018 through August 20, 2019, we sold through Cowen an aggregate of 2,141,452 shares of our Class A common stock under this “at the market” offering, resulting in gross proceeds to us of $49,999,625. For the period from January 1, through August 20, 2019, we sold through Cowen 942,223 shares of our Class A common stock under this at-the-market offering, resulting in gross proceeds to us of $22,753,943 and net proceeds of $22,059,015 after offering costs of $694,928.
On August 13, 2019, we entered into a second Sales Agreement with Cowen, which has subsequently expired, relating to the sale of additional shares of our Class A common stock to be offered. In accordance with the terms of the second Sales Agreement, we could offer and sell from time to time up to $75,000,000 of shares of our Class A common stock through Cowen acting as our agent. Cowen was 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 was an amount equal to 3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. From August 21, 2019 through December 31, 2019, we sold through Cowen 448,880 shares of our Class A common stock under the second “at the market” offering, resulting in gross proceeds to us of $9,450,789 and net proceeds of $9,122,227, after offering costs of $328,562. During fiscal year 2020, we sold through Cowen 40,455 shares of our Class A common stock under the second “at the market” offering, resulting in gross proceeds to us of $669,751 and net proceeds of $649,659, after offering costs of $20,092. We have provided Cowen with customary indemnification and contribution rights under each Sales Agreement. In connection with sales of Class A common stock on our behalf, Cowen is deemed to be an “underwriter” within the meaning of the Securities Act and the compensation paid to Cowen is deemed to be underwriting commissions or discounts.
On May 28, 2020, we entered into the underwriting agreement with Wells Fargo Securities, LLC and Cowen as joint lead book-running managers for a public offering of 3,200,000 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. 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, resulting in total gross proceeds to us of $58,880,000. We raised this capital to fund the planned expansion of our fiber-to-the-home broadband business, to seek to grow our Link billboard business through the acquisitions of additional billboard businesses, and for general corporate purposes. 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.
Borrowing of money. On August 12, 2019, Link Media Holdings, Inc., (“Link”), our wholly owned subsidiary, which owns and operates our 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 $40,000,000 (the “Credit Facility”). The Credit Agreement provides for an initial term loan (“Term Loan 1”), an incremental term loan (“Term Loan 2”) and a revolving line of credit. These loans are secured by all assets of Link and its operating subsidiaries, including a pledge of equity interests of each of Link’s subsidiaries. In addition, each of Link’s subsidiaries has joined as a guarantor to the obligations under the Credit Agreement. These loans are not guaranteed by us or any of our non-billboard businesses.
As of December 31, 2020, Link borrowed $18,060,000 through Term Loan 1 and $5,500,000 through Term Loan 2 under the Credit Facility. Principal amounts under each of Term Loan 1 and Term Loan 2 are payable in monthly installments according to a 15-year amortization schedule. These principal payments commenced on July 1, 2020 for Term Loan 1 and on October 1, 2020 for Term Loan 2. Both term loans are payable in full on August 12, 2026. Term Loan 1 and Term Loan 2 have fixed interest rates of 4.25% and 3.375%, respectively, per annum.
The revolving line of credit loan facility has a $5,000,000 maximum availability. Interest payments are based on the 30-day LIBOR rate plus an applicable margin ranging between 2.00 and 2.50% dependent on Link’s consolidated leverage ratio. The revolving line of credit is due and payable on August 11, 2021.
Long-term debt included within our consolidated balance sheet as of December 31, 2020 consists of Term Loan 1 and Term Loan 2 borrowings of $23,057,650, of which $1,282,504 is classified as current. There were no amounts outstanding related to the revolving line of credit as of December 31, 2020 and 2019.
During the term of the Credit Facility, Link is required to comply with the following financial covenants: A consolidated leverage ratio for any test period ending on the last day of any fiscal quarter of Link (a) beginning with the fiscal quarter ending December 31, 2019 of not greater than 3.50 to 1.00, (b) beginning with the fiscal quarter ending December 31, 2020 of not greater than 3.25 to 1.00, and (c) beginning with the fiscal quarter ending December 31, 2021 and thereafter, of not greater than 3.00 to 1.0; minimum consolidated fixed charge coverage ratio of not less than 1.15 to 1.00 measured quarterly, based on rolling four quarters, with testing to commence as of December 31, 2019 based on the December 31, 2019 audited financial statements. The Company was in compliance with these covenants as of December 31, 2020.
The Credit Agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the Lender may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans will automatically accelerate.
As of December 31, 2020, we had approximately $45 million in unrestricted cash and $38 million short-term treasury securities. We also expect to continue to sell additional shares of our Class A common stock in the “at the market” offering if we deem the pricing attractive relative to our potential uses of capital. We currently expect that our current cash will be sufficient to fund existing operations for at least the next 12 months. Depending on the amount of significant acquisitions and investments we make, we may need to raise additional financing to make additional acquisitions and/or investments and expect to file a new shelf registration statement.
We may in the future use a number of different sources to finance our acquisitions and operations, including cash flows from operations, seller financing, private financings (such as bank credit facilities, which may or may not be secured by our assets), additional common or preferred equity issuances or any combination of these sources, to the extent available to us, or other sources that may become available from time to time, which could include asset sales and issuance of debt securities. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. We also may take advantage of joint venture or other partnering opportunities as such opportunities arise in order to acquire properties that would otherwise be unavailable to us.
We may use the proceeds of any future borrowings to acquire assets or for general corporate purposes. We expect to use leverage on terms we find attractive, assessing the appropriateness of new equity or debt capital based on market conditions, including assumptions regarding future cash flow, the creditworthiness of customers and future rental rates. Our certificate of incorporation, which, as amended from time to time, we refer to as our “certificate of incorporation” and bylaws, which, as amended from time to time, we refer to as our “bylaws,” do not limit the amount of debt that we may incur. Our Board of Directors has not adopted a policy limiting the total amount of debt that we may incur. Our Board of Directors will consider a number of factors in evaluating the amount of debt that we may incur. If we adopt a debt policy, our Board of Directors may from time to time modify such policy in light of then-current economic conditions, relative costs of debt and equity capital, market values of our properties, general conditions in the market for debt and equity securities, fluctuations in the market price of our common stock if then trading on any exchange, growth and acquisition opportunities and other factors. Our decision to use leverage in the future to finance our assets will be at our discretion and will not be subject to the approval of our stockholders, and we are not restricted by our governing documents or otherwise in the amount of leverage that we may use.
Purchase and sale (or turnover) of acquired businesses. We do not currently intend to dispose of any of our properties in the near future as our strategy is to acquire assets which have the potential to generate significant cash flow over an extended period of time. However, we reserve the right to do so if, based upon management’s periodic review of our portfolio, our Board of Directors determines that such action would be in our best interest.
Offering of securities in exchange for property. We may in the future issue shares of common stock in connection with acquisitions of other businesses. For issuances of shares in connection with acquisitions, our Board of Directors will determine the timing and size of the issuances. Our Board of Directors intends to use its reasonable business judgment to fulfill its fiduciary obligations to our then existing stockholders in connection with any such issuance, including its determination of whether the issuance is accretive to intrinsic value. Nonetheless, future issuances of additional shares could cause immediate and substantial dilution to the net tangible book value of shares of our Class A common stock issued and outstanding immediately before such transaction. In addition, we may have sellers rollover a portion of their equity holdings into an equity holding in the newly acquired business. In those situations, we may provide the seller with an option to put its holding to us and similarly, we may have an option to purchase the rollover equity stake. Any future decrease in the net tangible book value of such issued and outstanding shares could materially and adversely affect the market value of shares of our Class A common stock
Available Information
You can find more information about us at our Internet website located at www.bostonomaha.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports are available free of charge through our website as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. The contents of our website are not deemed to be part of this Annual Report on Form 10-K or any of our other filings with the SEC.
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information with the SEC. The SEC also maintains a website that contains these reports, proxy and information statements and other information regarding issuers, including us, that file electronically with the SEC. The address of that site is https://www.sec.gov.
Item 1A. Risk Factors.
An investment in shares of our common stock is highly speculative and involves a high degree of risk. You should carefully consider all of the risks discussed below, as well as the other information contained in this Annual Report. If any of the following risks or uncertainties actually occur, our business, financial condition, results of operations, cash flow and prospects could be materially adversely affected. Additional risks or uncertainties not currently known to us, or that we deem immaterial, may also have a material adverse effect on our business financial condition, results of operations or prospects. We cannot assure you that any of the events discussed in the risk factors below will not occur. In that case, the market price of our Class A common stock could decline and you may lose all or a part of your investment.
Risks Related to the Company and Our Business
We have incurred losses from operations since inception and we anticipate that we will continue to incur losses for the foreseeable future.
We have incurred losses from operations in each year since our formation in 2009. Our net loss from operations for the fiscal years ended December 31, 2020 and 2019 was $4.0 million and $12.4 million, respectively. We have funded our operations to date principally from the sale of securities. In addition, as we acquire other businesses, we incur ongoing depreciation and amortization charges, which are typically spread over a number of years, as well as the costs of completing such acquisitions, which are expensed as incurred. In the three fiscal years ending December 31, 2020, we spent over $190 million on acquisitions which will generate significant depreciation and amortization charges. For these reasons, we may continue to incur significant losses. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity and working capital and we cannot assure you that we will be able to be successful in implementing our business strategy.
Our failure to successfully identify and complete future acquisitions of assets or businesses could reduce future potential earnings, reduce available cash and slow our anticipated growth.
The acquisition of assets or businesses that we believe to be valuable to our business is an important component to our business strategy. Our experience in acquiring companies has been relatively limited to date. We believe that a wide variety of acquisition opportunities may arise from time to time, and that any such acquisition could be significant. At any given time, discussions with one or more potential sellers may be at different stages, including negotiations following the execution of nonbinding letters of intent. However, any such discussions, including the execution of nonbinding letters of intent, may not result in the consummation of an acquisition transaction, and we may not be able to identify or complete any acquisitions. The costs and benefits of future acquisitions are uncertain. In addition, the market and industry reception to our acquisitions, or lack thereof, may not be positive, and is out of our control. We cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of our Class A common stock. If we identify appropriate acquisition targets, we may be unable to acquire businesses on terms that we consider acceptable due to a variety of factors, including competition from other strategic buyers or financial buyers, some of which may have more experience or more access to capital than we do.
Our business is capital intensive and any such transactions could involve the payment by us of a substantial amount of cash. We may need to raise additional capital through public or private debt or equity financings to execute our growth strategy and to fund acquisitions. Adequate sources of capital may not be available when needed on acceptable terms, or at all. If we raise additional capital by issuing additional equity securities, existing stockholders may be diluted. Acquisitions could also result in us incurring additional debt and contingent liabilities and fluctuations in quarterly results and expenses. If our capital resources are insufficient at any time in the future, we may be unable to fund acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.
Any future acquisitions could present a number of risks, including but not limited to the risk of using management time and resources to pursue acquisitions that are not successfully completed, the risk of incorrect assumptions regarding future results of acquired operations, and the risk of diversion of management’s attention from existing operations or other priorities. Future acquisitions can also be expected to generate additional depreciation and amortization charges which may contribute to losses. Acquisitions may never meet our expectations.
If we are unsuccessful in identifying and completing acquisitions of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important component of our business strategy successfully.
We may have difficulty integrating the operations of companies or businesses that we may acquire and may incur substantial costs in connection therewith.
A significant component of our growth strategy is the acquisition of other operations. The process of integrating the operations of an acquired company may create unforeseen operating difficulties and expenditures. The key areas where we may face risks and uncertainties include:
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disruption of ongoing business, diversion of resources and of management time and focus from operating our business to acquisitions and integration challenges;
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our ability to achieve anticipated benefits of acquisitions by successfully marketing the service offerings of acquired businesses to our existing partners and customers, or by successfully marketing our existing service offerings to customers and partners of acquired businesses;
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the negative impact of acquisitions on our results of operations as a result of large one-time charges, substantial debt or liabilities acquired or incurred, litigation, amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets, or adverse tax consequences, substantial depreciation or deferred compensation charges;
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the inability to generate sufficient revenue to offset acquisition costs;
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the need to ensure that we comply with all regulatory requirements in connection with and following the completion of acquisitions;
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the possibility of acquiring unknown or unanticipated contingencies or liabilities;
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retaining employees and clients and otherwise preserving the value of the assets of the businesses we acquire;
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the need to integrate each acquired business’s accounting, information technology, human resource and other administrative systems to permit effective management; and
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the need to implement or remediate appropriate controls, procedures and policies at companies that, prior to the acquisition, lacked these controls, procedures and policies.
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In order to achieve the growth we seek, we may acquire numerous smaller market participants, which could require significant attention from management and increase risks, costs and uncertainties associated with integration. The businesses and other assets we acquire in the future may not achieve sufficient revenue or profitability to justify our investment, and any difficulties we may encounter in the integration process could interfere with our operations and reduce operating margins. We may need to make substantial capital and operating expenditures which may negatively impact our results in the near term, and the acquisitions may never meet our expectations.
Our investment in Yellowstone could be lost if we are unable to consummate a business acquisition by January 25, 2022 or if any business combination proves unsuccessful.
In 2020, we acted as the sponsor for the initial public offering of Yellowstone, a SPAC. We purchased Yellowstone Class B common stock and private placement warrants at a cost of approximately $7.8 million. As of December 31, 2020, Yellowstone is consolidated within the financial statements included within this Form 10-K as we have concluded that Yellowstone is a Variable Interest Entity of which we are the primary beneficiary. As such, our investment in Yellowstone, consisting of the Class B common stock and private placement warrants, is eliminated in consolidation. Under the terms of the Yellowstone IPO, we are required to consummate a business combination by January 25, 2022. If we are unsuccessful in consummating a business combination by that date, we would likely lose our entire investment. If we do consummate a business combination by January 25, 2022, our Class B common stock remains subject to a lockup of at least 150 days following the completion of the business combination and there can be no assurance that any completed business combination will be successful.
Some members of our senior management team have limited experience in the day-to-day operations of the industries in which our businesses operate.
Some members of our senior management team have been involved in the day-to-day operation of companies in the outdoor billboard and insurance industries for only five to six years and in the fiber to the home business for only one year. In addition, we may have limited or no operational experience in other industries and markets which we may choose to enter. Our management team relies on the knowledge and talent of the employees in our operating subsidiaries to successfully operate these businesses on a day-to-day basis. We may not be able to retain, hire or train personnel as quickly or efficiently as we need or on terms that are acceptable to us. An inability to efficiently operate our businesses would have a material adverse effect on our business, financial condition, results of operations, and prospects.
Increased operating expenses associated with the expansion of our business may negatively impact our operating income.
Increased operating expenses associated with any expansion of our business may negatively impact our income as we, among other things:
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seek to acquire related businesses or expand the products being offered;
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make significant capital expenditures to support our ability to provide services in our existing businesses;
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incur significant depreciation and amortization charges in connection with acquired businesses; and
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incur increased general and administrative expenses as we grow.
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As a result of these factors, we may not achieve, sustain or increase our profitability on an ongoing basis.
We could suffer losses due to asset impairment charges for goodwill and other intangible assets.
We annually test goodwill for impairment, and did so as of October 1, 2020. Based on our review at October 1, 2020, no impairment charge was required. We continue to assess whether factors or indicators become apparent that would require an interim impairment test between our annual impairment test dates. For example, if our market capitalization is below our equity book value for a period of time without recovery, we believe there is a strong presumption that would indicate a triggering event has occurred and it is more likely than not that the fair value of one or more of our reporting units are below their carrying amount. This would require us to test the reporting units for impairment of goodwill. If this presumption cannot be overcome a reporting unit could be impaired under ASC 350, Goodwill and Other Intangible Assets and a non-cash charge would be required. Any such charge could have a material adverse effect on the Company’s financial condition and results of operations.
We may raise additional equity capital through additional public or private placements, any of which could substantially dilute your investment.
We may need significant additional capital in the future to continue our planned acquisitions. No assurance can be given that we will be able to obtain such funds upon favorable terms and conditions, if at all. Failure to do so could have a material adverse effect on our business. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell Class A common stock, convertible securities or other equity or convertible securities in one or more transactions that may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, antidilution, and conversion and redemption rights, subject to applicable law, and at prices and in a manner we determine from time to time.
Such issuances and the exercise of any convertible securities will dilute the percentage ownership of our stockholders, and may affect the value of our capital stock and could adversely affect the rights of the holders of such stock, thereby reducing the value of such stock. Moreover, any exercise of convertible securities may adversely affect the terms upon which we will be able to obtain additional equity capital, since the holders of such convertible securities can be expected to exercise them at a time when we would, in all likelihood, not be able to obtain any needed capital on terms more favorable to us than those provided in such convertible securities.
We may also raise additional capital pursuant to future shelf registration statements or additional public or private placements based on our capital needs. If we sell shares or other equity securities in one or more other transactions, or issue stock or stock options pursuant to any future employee equity incentive plan, investors may be materially diluted by such subsequent issuances.
Our investments in publicly traded securities involve a substantial degree of risk.
In addition to our investments in privately-held companies, we may purchase publicly traded common stock and other equity securities, including warrants and corporate bonds. Although equity securities have historically generated higher average total returns than fixed-income securities over the long term, equity securities have also generally experienced significantly more volatility in those returns. The publicly traded securities we acquire may fail to appreciate and may decline in value or become worthless. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities and corporate bonds involve special risks, such as the risk of deferred distributions, credit risk, illiquidity, changes in value based upon interest rates changes and other macroeconomic factors and limited voting rights. At December 31, 2020, we held approximately $64 million in investments in publicly traded securities. On January 25, 2021, DFH completed its initial public offering and our $10 million investment in DFH common units was converted into 4,681,099 shares of Class A common stock of DFH and one of our subsidiaries purchased an additional 120,000 shares of DFH Class A common stock at $13.00 per share in the initial public offering. The shares acquired from our 2017 investment in DFH are subject to a lockup which expires on July 19, 2021 and, due to our ownership of more than 10% of the Class A common stock of DFH, we are subject to volume trading limitations imposed by Rule 144 under the Securities Act, which can limit the number of shares of DFH Class A common stock we can sell in any 90-day period, which limitation will remain in place until such time as we are no longer deemed to own 10% or more of the Class A common stock of DFH. At March 26, 2021, our total investment in DFH, based on its closing price on such date, was valued at over $111 million. Any decrease in the value of DFH common stock before we can liquidate our holdings in DFH could materially adversely impact our operating results and our stockholders’ equity.
We run the risk of inadvertently being deemed to be an investment company that is required to register under the Investment Company Act of 1940.
We run the risk of inadvertently being deemed to be an investment company that is required to register under the Investment Company Act of 1940 (the “Investment Company Act”) because a significant portion of our assets consists of investments in companies in which we own less than a majority interest. The risk varies depending on events beyond our control, such as significant appreciation or depreciation in the market value of certain of our publicly traded holdings, adverse developments with respect to our ownership of certain of our subsidiaries, and transactions involving the sale of certain assets. If we are deemed to be an inadvertent investment company, we may seek to rely on a safe-harbor under the Investment Company Act that would provide us a one-year grace period to take steps to avoid being deemed to be an investment company. In order to ensure we avoid being deemed an investment company, we have taken, and may need to continue to take, steps to reduce the percentage of our assets that constitute investment assets under the Investment Company Act. These steps have included, among others, selling marketable securities that we might otherwise hold for the long-term and deploying our cash in non-investment assets. We have recently sold marketable securities, including at times at a loss, and we may be forced to sell our investment assets at unattractive prices or to sell assets that we otherwise believe benefit our business in the future to remain below the requisite threshold. We may also seek to acquire additional non-investment assets to maintain compliance with the Investment Company Act, and we may need to incur debt, issue additional equity or enter into other financing arrangements that are not otherwise attractive to our business. Any of these actions could have a material adverse effect on our results of operations and financial condition. Moreover, we can make no assurance that we would successfully be able to take the necessary steps to avoid being deemed to be an investment company in accordance with the safe-harbor. If we were unsuccessful, then we would have to register as an investment company, and we would be unable to operate our business in its current form. We would be subject to extensive, restrictive, and potentially adverse statutory provisions and regulations relating to, among other things, operating methods, management, capital structure, indebtedness, dividends, and transactions with affiliates. If we were deemed to be an investment company and did not register as an investment company when required to do so, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, that we would be unable to enforce contracts with third parties, and/or that third parties could seek to obtain rescission of transactions with us undertaken during the period in which we were an unregistered investment company.
The existing and future indebtedness incurred by our billboard business may adversely affect our ability to obtain additional funds and may increase our vulnerability to economic or business downturns. Failure to comply with the terms of this indebtedness could result in a default by our billboard business that could have material adverse consequences for us.
Link, which operates our billboard businesses, entered into a credit agreement in August 2019 with a commercial bank which provides Link and its subsidiaries the opportunity to borrow up to $40 million in principal through a combination of long-term debt and a line of credit. Link's current borrowings under the bank credit facility as of December 31, 2020 totaled $23,057,650, all of which represents a term loan. In addition, Link may incur additional indebtedness in the future. Accordingly, Link is subject to the risks associated with significant indebtedness, including:
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Link must dedicate a portion of its cash flows from operations to pay principal and interest and, as a result, it may have less funds available for operations and other purposes;
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Link may find it more difficult and expensive to obtain additional funds through financings, if available at all;
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Link is more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in reacting to changes in the billboard industry and general economic conditions;
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if Link defaults under the credit facility, including failing to pay the outstanding principal when due, and if the lender demands payment of a portion or all of the indebtedness, it may not have sufficient funds to make such payments;
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if Link is unable to refinance indebtedness on its properties at maturity due to business and market factors, including: disruptions in the capital and credit markets; the estimated cash flows of Link's properties and other assets; the value of Link's properties and other assets; and financial, competitive, business and other factors, including factors beyond Link's control;
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if refinanced, the terms of a refinancing may not be as favorable as the original terms of the related indebtedness; and
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if Link borrows any sums under the line of credit, the interest rate it pays on such debt will be subject to changes in interest rates.
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The occurrence of any of these events could materially adversely affect Link, which would adversely affect our results of operations and financial condition and adversely affect our stock price.
Furthermore, a failure to comply with the obligations contained in the loan agreements governing Link's indebtedness could result in an event of default under such agreements which could result in an acceleration of debt under other instruments evidencing indebtedness that contains cross-acceleration or cross-default provisions. If Link's indebtedness were to be accelerated, there can be no assurance that its future cash flow or assets would be sufficient to repay in full such indebtedness.
We may in the future rely in part on Link to provide us with the funds necessary to make distributions to us to meet our financial obligations. The leverage on Link's assets may affect the funds available to us if the terms of the debt impose restrictions on the ability of Link to make distributions to us. In addition, Link will generally have to service its debt obligations before making distributions to us or any of our other subsidiaries and any such distributions may require the consent of the lender. Leverage may also result in a requirement for liquidity, which may force the sale of assets at times of low demand and/or prices for such assets.
We may also incur indebtedness under future credit facilities.
If we are unable to refinance our indebtedness on acceptable terms, or at all, we may need to dispose of one or more of our properties or other assets under disadvantageous terms. In addition, prevailing interest rates or other factors at the time of refinancing could increase our interest expense, and if we grant a security interest in any of our properties, or the properties of our subsidiaries to secure payment of indebtedness and are unable to make loan payments, the lender could foreclose upon such property.
Restrictive covenants in Link's indebtedness may limit management’s discretion with respect to certain business matters.
Instruments governing Link's indebtedness contain restrictive covenants limiting Link's discretion with respect to certain business matters. These covenants could place significant restrictions on, among other things, Link's ability to create liens or other encumbrances, to make distributions to us or make certain other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. Covenants also require Link to meet certain financial ratios and financial condition tests. A failure to comply with any such covenants could result in a default which, if not cured or waived, could permit acceleration of the relevant indebtedness.
If we are unable to manage our interest rate risk effectively, our cash flows and operating results may suffer.
Advances under Link's $5 million revolving line of credit bear interest at a variable rate. Although we have not currently borrowed any sums under this line of credit, and this line of credit is currently set to expire in August 2021, we may incur indebtedness under this line of credit in the future. Also, we may be required to refinance our debt at higher rates. Accordingly, increases in interest rates above that which we anticipate based upon historical trends would adversely affect our cash flows and we may not be able to hedge such exposure effectively, if at all.
We may raise additional capital pursuant to debt financing, and such debt financing arrangements may contain covenants, which, if not complied with, could have a material adverse effect on our financial condition.
Other than the bank borrowings to Link, to date we have not had a significant debt financing. However, as our operations grow and we achieve certain levels of revenue and cash flows, we may consider utilizing debt to finance additional acquisitions and our operations. Subject to market conditions and availability, we, or our subsidiaries, may incur significant debt through credit facilities (including term loans and/or revolving facilities), structured financing arrangements, public and private debt issuances or otherwise. Future debt financing arrangements may contain various covenants, including restrictive covenants, which, if not complied with, could have a material adverse effect on our ability to meet our debt obligations and our overall financial condition. Additionally, debt financing arrangements may be at the subsidiary level, but could include a guaranty by us, and could require a pledge of all or substantially all of our, and/or our subsidiaries’, assets.
The amount of leverage we use will vary depending on our available acquisition investment opportunities, our available capital, our ability to obtain and access financing arrangements with lenders, and the lenders’ and our estimates of the stability of our operating cash flows. Our governing documents contain no limit on the amount of debt we may incur, and we may significantly increase the amount of leverage we utilize at any time without approval of our shareholders. The amount of leverage on individual assets may vary, with leverage on some assets substantially higher than others, including at the subsidiary level. Leverage can enhance our potential returns but can also exacerbate our losses.
Incurring additional substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that:
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our cash flow from operations may be insufficient to make required payments of principal and interest on the debt or we may fail to comply with covenants contained in our debt instruments, which would likely result in (a) acceleration of such debt (and any other debt arrangements containing a cross default or cross acceleration provision) that we may be unable to repay from internal funds, unable to refinance on favorable terms, or unable to repay at all, (b) our inability to borrow additional amounts under other facilities, even if we are current in payments on borrowings under those arrangements and/or (c) the loss of some or all of our assets to foreclosures or forced sales;
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our debt may increase our vulnerability to adverse economic, market and industry conditions;
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we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, distributions to our shareholders or other purposes; and
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we may not be able to refinance maturing debts.
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We cannot be sure that our leverage strategies will be successful.
We may be unable to access capital.
Our access to capital depends on a number of factors, some of which we have little or no control over, including:
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general economic, market or industry conditions;
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the market’s view of the quality of our assets;
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the market’s perception of our growth potential;
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our current and potential future earnings and distributions to our shareholders; and
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the value of our securities.
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We may have to rely on additional equity issuances, which may be dilutive to our shareholders, or on costly debt financings that require a large portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, distributions to our shareholders or other purposes. We cannot be sure that we will have access to such equity or debt capital on favorable terms at the desired times, or at all, which could negatively affect our financial condition and results of operations.
We face intense competition, including competition from companies with significantly greater resources than us, and if we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.
Outdoor Billboard Advertising. The outdoor billboard industry is highly competitive. There is a concentration in the ownership of billboards in the geographic markets in which we compete and significantly larger companies, such as Clear Channel Outdoor Holdings, Inc., Outfront Media, Inc. and Lamar Advertising Company, own the majority of the out-of-home advertising billboards. Such competition may make it difficult to maintain or increase our current advertising revenues. In addition to competing for advertising revenue with other outdoor advertising businesses, the outdoor advertising market faces competition from other media, including radio, internet based services, print media, television, direct mail, satellite services and other mobile devices. Our competitors may develop technology, services or advertising media that are equal or superior to those we provide or that achieve greater market acceptance and brand recognition than we achieve. Also, new competitors may emerge and rapidly acquire significant market share in any of our business segments. Also, increased competition for advertising dollars may lead to lower advertising rates if we are to retain customers or may cause us to lose customers to our competitors who offer lower rates that we are unable or unwilling to match.
Insurance Operations. Our insurance business operates in an environment that is highly competitive and very fragmented. We will likely compete with other global insurance and reinsurance providers, including but not limited to Travelers, Liberty Mutual, Zurich Insurance Group, Lloyds and CNA Insurance Group, as well as numerous specialist, regional and local firms in almost every area of our surety business. Further, new competitors may regularly enter the market. In 2019 and 2020, we derived a substantial portion of our surety insurance revenues from the sale of apartment and commercial lease rental guarantee bonds. We have generally stopped issuing these bonds due to the current rental environment and other companies may seek to enter that market. In addition to UCS, we also operate several surety insurance brokerage firms, and the surety insurance brokerage industry has relatively low barriers to entry. We may experience significant competition and our competitors may have greater financial, marketing and human resources than us.
Broadband Services. Our broadband services compete with other technologies, including traditional cable services as well as satellite services. These markets are highly competitive, and many traditional providers of cable and wireless services have greater financial, marketing and human resources than us and may be able to offer additional products and services to our customers. In addition, new technologies may be developed which would provide an alternative to our fiber to the home services we currently provide. As we seek to expand our broadband services, we may face incumbent service providers which would be able to retain a significant customer base in the communities in which we may seek to enter, making it difficult to achieve a share of the market needed to provide our services profitably.
Any additional industries or markets that we may enter through future acquisitions will also likely be occupied by established competitors. Many of our current competitors have substantially greater financial, marketing, product development and human resources than we do. Accordingly, even if there is a large market for our products and services in the industries in which we compete, there can be no assurance that our products and services will be purchased by consumers at a rate sufficient for us to achieve our growth objectives.
Our management recognizes that we will, therefore, be forced to compete primarily on the basis of price, location, performance, service, and other factors. Our management believes that our ability to achieve sustained profitability will depend primarily on our ability to consummate acquisitions of assets and businesses in competitive markets, skillfully allocate capital, and establish competitive advantages in each of our businesses. This approach requires that our management perform at a high level and is fraught with risks, many of which are beyond our control or ability to foresee.
Adverse economic conditions could negatively affect our results of operations and financial condition.
Our results of operations are sensitive to changes in overall economic conditions that impact consumer and commercial spending, including discretionary spending and the financial impact to consumers and businesses from the COVID-19 pandemic. Future economic conditions such as employment levels, business conditions, interest rates and tax rates could reduce our revenues. A general reduction in the level of business activity could adversely affect our financial condition and/or results of operations. For example, in particular, adverse economic conditions, either regionally or nationally, may result in reduced advertising expenditures that could adversely affect our billboard segment of operations. Adverse economic conditions may result in fewer surety transactions and adversely affect our insurance segment of operations. Adverse economic conditions may also affect our investments in homebuilding, auto lending, and commercial real estate management and services.
The current outbreak of the novel coronavirus, or COVID-19, has impacted and may materially adversely impact and cause disruption to, and any future outbreak of any other highly infectious or contagious diseases may materially adversely impact and cause disruption to, our business, financial performance and condition, operating results and cash flows. Further, the spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting a wide variety of control measures, including states of emergency, mandatory quarantines, required business and school closures, implementing "shelter in place" orders and restricting travel. Many experts predict that the outbreak will trigger a period of material global economic slowdown or a global recession.
COVID-19 disrupted certain portions of our business in 2020 and may have had a material adverse effect on certain of our investments in other businesses, and may continue to materially adversely impact and cause disruption to our business, financial performance and condition, operating results and cash flows. Factors that would negatively impact our ability to successfully operate during COVID-19 or another pandemic include:
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Revenues from our three business lines may be materially impacted due to lessened demand for billboards, surety insurance and internet delivery to homes and businesses;
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We have suspended issuance of certain surety bonds, particularly bonds guaranteeing rental payments by both consumers and private businesses, which is expected to significantly reduce our revenues at UCS in the near term as revenues from our rental guarantee bond program accounted for $5,536,165 of UCS revenues in fiscal 2020. We anticipate that claims by landlords due to defaults by tenants will materially increase and we have increased our loss reserves in our UCS business from $1,203,493 at December 31, 2019 to $2,492,334 at December 31, 2020;
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The market value of our investments in publicly held securities of approximately $64 million at December 31, 2020 and the value of our equity stake in DFH, which consummated its initial public offering in January 2021, could drop significantly;
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Revenues and operating income of our minority ownership investments in commercial real estate services, homebuilding and consumer auto loan businesses may drop due to the impact of the pandemic on these businesses, resulting in a decrease in the value of our investments in these companies;
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Certain accounts receivable in our business may be more difficult to collect during the pandemic and following the commencement of business operations when our customers are allowed to reopen if businesses and consumers are unable to pay sums due to us;
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The continued service and availability of personnel, including our executive officers and other leaders that are part of our management team and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel may be impacted in significant numbers or in other significant ways by the outbreak of pandemic or epidemic disease and may not be available or allowed to conduct work;
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Our ability to ensure business continuity may be adversely affected in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption; and
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We may experience difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations, delay or prevent future acquisitions or adversely affect our ability to address maturing liabilities.
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The outbreak of COVID-19 may have materially negatively impacted, and may continue to materially negatively impact our business, financial performance and condition, operating results and cash flows. However, the significance, extent and duration of such impact remain largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States and other regions in which we operate, the extent and effectiveness of the containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in areas in which we operate, once the current containment measures are lifted.
The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.
Climate change, severe weather, natural disasters, and other external events could significantly impact our business.
Severe weather events cannot be predicted and may be exacerbated by global climate change, natural disasters, including hurricanes, flooding and earthquakes, acts of terrorism and other adverse external events. There is continuing uncertainty over what impact these events could have on our surety insurance bond business if claims are made against these bonds due to our customers inability to meet their contractual obligations due to delays caused by any serious health or other natural disaster. Significant storm damage may impact our transmission capabilities for our broadband services and significant damage could result in a loss of service for an extended period of time. Severe weather and natural disasters could affect travel and transportation which could impact the manner of advertising consumption, and severe weather and natural disasters could impact the structural integrity of our billboards. The occurrence of any such event could have a material adverse effect on our business, financial condition and results of operations. The insurance we maintain against disasters may not be adequate to cover our losses in any particular case, which could require us to expend significant resources to replace any destroyed assets and materially and adversely affect our financial condition, results of operations and business prospects.
We may be unable to employ a sufficient number of key employees and other experienced or qualified workers.
The delivery of our services and products requires sales professionals and other personnel with substantial work experience in our lines of business. Workers may choose to pursue employment with our competitors or in fields that offer a more desirable work environment. Our ability to be productive and profitable will depend upon our ability to employ and retain workers with certain backgrounds and experience, such as experienced sales professionals and workers with substantial experience with insurance underwriting and risk and financial analysis. In addition, our ability to further expand our operations according to geographic demand for our services depends in part on our ability to relocate or increase the size of our qualified and experienced labor force. The demand for experienced workers in our areas of operations can be high, the supply may be limited and we may be unable to relocate our employees from areas of lower utilization to areas of higher demand. A significant increase in the wages paid by competing employers could result in a reduction of our workers with required experience, increases in the wage rates that we must pay, or both. Further, a significant decrease in the wages paid by us or our competitors as a result of reduced industry demand could result in a reduction of the available pool of qualified and experienced individuals, and there is no assurance that the availability of such qualified and experienced labor will improve following a subsequent increase in demand for our services or an increase in wage rates. If any of these events were to occur, our capacity and profitability could be diminished and our growth potential could be impaired.
We are heavily reliant upon our executive management team.
We depend heavily on the efforts and services of our executive officers and other members of our management team to manage our operations, including our Co-Chief Executive Officers and our Chief Financial Officer. The unexpected loss or unavailability of key members of management may have a material adverse effect on our business, financial condition, results of operations, or prospects. Although our Co-Chief Executive Officers devote most of their business time to us and are highly active in our management, they expend part of their time on other business ventures. Among other commitments, our Co-Chief Executive Officers are each managing members of separate investment management entities and are not obligated to devote any specific number of hours to our affairs. These two key employees may not be able to dedicate adequate time to our businesses and operations, and we could experience an adverse effect on our operations due to the demands placed on our management team by their other professional obligations. In addition, these key employees’ other responsibilities could cause conflicts of interest with us.
Our executive officers and directors may experience a conflict of interest between their duties to us and to affiliated parties.
Our Co-Chief Executive Officers, Adam K. Peterson and Alex B. Rozek, are each managing members of separate investment management entities that collectively own 42.1% of our Class A common stock and all of our Class B common stock. While we have deemed that the outside business endeavors of our management team do not currently constitute a conflict of interest, it is possible that a conflict of interest could arise between the performance of our executive management team and their roles as managing members of entities which together own a majority of our outstanding capital stock. These conflicts may not be resolved in our favor. Such conflicts of interest could have a material adverse effect on our business and operations. Further, the appearance of conflicts of interest created by related party transactions could impair the confidence of our investors. We have the authority to engage various contracting parties, which may be affiliates of ours or of our directors. As such, our directors may have a conflict of interest between their fiduciary duties to manage the business for our benefit and our stockholders and their direct and indirect affiliates’ interests in establishing and maintaining relationships with us and in obtaining compensation for services rendered to us. With respect to such affiliates, there may be an absence of arms’ length negotiations with respect to the terms, conditions and consideration with respect to goods and services provided to or by us. As of December 31, 2020, we had minority investments totaling $655,784 in Logic, $53,494 in 24th Street Holding Co., $2,978,429 in 24th Street Fund I, and $3,000,000 in 24th Street Fund II. Brendan J. Keating, who is one of our directors, is the Manager of both Logic and 24th Street Holding Co. In addition, Alex B. Rozek and Adam K. Peterson, both of whom are our directors, are also directors of Yellowstone.
Disruptions to our information technology systems could disrupt our business operations which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
The operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage, among other things, our business data, communications, supply chain, inventory management, customer order entry and order fulfillment, processing transactions, summarizing and reporting results of operations, human resources benefits and payroll management, compliance with regulatory, legal and tax requirements and other processes and data necessary to manage our business. Disruptions to our information technology systems, including any disruptions to our current systems and/or as a result of transitioning to additional or replacement information technology systems, as the case may be, could disrupt our business and could result in, among other things, transaction errors, processing inefficiencies, loss of data and the loss of sales and customers, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including, without limitation, fire, natural disasters, power outages, systems disruptions, system conversions, security breaches, cyberattacks, phishing attacks, viruses and/or human error. In any such event, we could be required to make a significant investment to fix or replace our information technology systems, and we could experience interruptions in our ability to service our customers. These risks have been and may continue to be exacerbated as a result of remote working in response to the COVID-19 pandemic. Any such damage or interruption could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
In addition, as part of our normal business activities, we collect and store certain confidential information, including personal information with respect to customers, consumers and employees, and the success of our operations depends on the secure transmission of confidential and personal data over public networks, including the use of cashless payments. We may share some of this information with vendors who assist us with certain aspects of our business. Moreover, the success of our operations depends upon the secure transmission of confidential and personal data over public networks, including the use of cashless payments. Any failure on our part or our vendors to maintain the security of this confidential data and personal information, including via the penetration of our network security (or those if our vendors) and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation, any or all of which could result in our incurring potentially substantial costs. Such events could also result in the deterioration of confidence in us by employees, consumers and customers and cause other competitive disadvantages. In addition, a security or data privacy breach could require us to expend significant additional resources to enhance our information security systems and could result in a disruption to our operations. Furthermore, third parties, such as our suppliers and retail consumers, may also rely on information technology and be subject to such cybersecurity breaches. These breaches may negatively impact their businesses, which could in turn disrupt our supply chain and/or our business operations. Due to the potential significant costs, business disruption and reputational damage that typically accompany a cyberattack or cybersecurity breach, any such event could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
Our information technology systems, or those of our third-party service providers, may be accessed by unauthorized users such as cyber criminals as a result of a disruption, cyberattack or other security breach. Cyberattacks and other cybersecurity incidents are occurring more frequently, are constantly evolving in nature, are becoming more sophisticated and are being made by groups and individuals with a wide range of expertise and motives. Such cyberattacks and cyber incidents can take many forms, including cyber extortion, social engineering, password theft or introduction of viruses or malware, such as ransomware through phishing emails. As techniques used by cyber criminals change frequently, a disruption, cyberattack or other security breach of our information technology systems or infrastructure, or those of our third-party service providers, may go undetected for an extended period and could result in the theft, transfer, unauthorized access to, disclosure, modification, misuse, loss or destruction of our, employee, representative, customer, vendor, consumer and/or other third-party data, including sensitive or confidential data and personal information. We cannot guarantee that our security efforts will prevent breaches or breakdowns of our or our third-party service providers’ information technology systems.
Changes in laws and regulations governing data privacy and data protection could have a material adverse impact on our business.
We are subject to data privacy laws and regulations that apply to the collection, transmission, storage and use of personally identifiable information, as well as numerous other countries’, federal and state privacy and breach notification laws. While we continue to assess and address the implications of existing and new regulations relating to data privacy, the evolving regulatory landscape presents a number of legal and operational challenges, and our efforts to comply may be unsuccessful. We may also face audits or investigations by one or more government agencies relating to our compliance with these regulations that could result in the imposition of penalties or fines, significant expenses in facilitating and responding to the investigations, and overall reputational harm or negative publicity. The costs of compliance with, and other burdens imposed by, such laws, regulations and policies that are applicable to us could have a material adverse effect on our business, financial condition and results of operations.
Governmental regulations could adversely affect our business, financial condition, results of operations and prospects, and we may not be successful in maintaining authority to issue surety insurance through UCS.
Outdoor Billboard Advertising. Our billboard businesses are regulated by governmental authorities in the jurisdictions in which we operate. These regulations could limit our growth by putting constraints on the number, location and timing of billboards we wish to erect. New regulations and changes to existing regulations may also curtail our ability to expand our billboard business and adversely affect us by reducing our revenues or increasing our operating expenses. For example, settlements between major tobacco companies and all U.S. states and certain U.S. territories include a ban on the outdoor advertising of tobacco products. Alcohol products and other products may be future targets of advertising bans, and legislation, litigation or out-of-court settlements may result in the implementation of additional advertising restrictions that impact our business. Any significant reduction in alcohol-related advertising or the advertising of other products due to content-related restrictions could negatively impact our revenues generated from such businesses and cause an increase in the existing inventory of available outdoor billboard space throughout the industry.
Insurance Operations. We are subject to maintaining compliance within the highly regulated insurance industry as we continue our pursuit of opportunities in that market, including the maintenance of certain levels of operating capital and reserves. Generally, the extensive regulations are designed to benefit or protect policyholders, rather than our investors, or to reduce systemic financial risk. Failure to comply with these regulations could lead to disciplinary action, the imposition of penalties and the revocation of our authorization to operate in the insurance industry. Changes to the regulatory environment in the insurance industry may cause us to adjust our views or practices regarding regulatory risk management, and necessitate changes to our operations that may limit our growth or have an adverse impact on our business.
Broadband Services. The building and delivery of our broadband services is subject to regulation by both the FCC and county and local governments. Failure to comply with these regulations could lead to the imposition of fines and ultimately the revocation of our authorization to provide these services. As technology changes continue in this market, new regulations may impose additional regulatory burdens and costs that could have an adverse impact on our business.
In addition, certain of the other new markets and industries that we may choose to enter may be regulated by a variety of federal, state and local agencies. Similarly, our investments in other companies, including the home building and consumer auto lending markets, are highly regulated by federal and other governmental agencies.
We are subject to extensive insurance regulation, which may adversely affect our ability to achieve our business objectives. In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.
Our insurance subsidiary, UCS, is subject to extensive regulation in Nebraska, its state of domicile, and to a lesser degree, the other states in which it operates. Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of investors or stockholders. These regulations generally are administered by a department of insurance in each state and relate to, among other things, authorizations to write excess and surplus lines of business, capital and surplus requirements, investment and underwriting limitations, affiliate transactions, dividend limitations, changes in control, solvency and a variety of other financial and non-financial aspects of our business. Significant changes in these laws and regulations could further limit our discretion or make it more expensive to conduct our business. State insurance regulators also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatory requirements may impose timing and expense constraints that could adversely affect our ability to achieve some or all of our business objectives.
In addition, state insurance regulators have broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe generally to be followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, state insurance regulators could preclude or temporarily suspend us from carrying on some or all of our activities or could otherwise penalize us. This could adversely affect our ability to operate our business. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could interfere with our operations and require us to bear additional costs of compliance, which could adversely affect our ability to operate our business.
The NAIC has adopted a system to test the adequacy of capital of insurance companies, known as “risk-based capital.” The risk-based capital formula establishes the minimum amount of capital necessary for a company to support its overall business operations. It identifies property and casualty insurers that may be inadequately capitalized by looking at three major areas: 1) Asset Risk; 2) Underwriting Risk; and 3) Other Risk. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation. Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business. Also, failure to maintain our U.S. Treasury Department listing or our A.M. Best A– (“Excellent”) rating would significantly impact our ability to operate effectively in the surety markets.
Because we are a holding company and a significant portion of our operations are conducted by our UCS insurance subsidiary, our ability to pay dividends may depend on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary.
Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders will likely depend in significant part on dividends and other distributions from our subsidiaries, including our insurance subsidiary, UCS. State insurance laws, including the laws of Nebraska, restrict the ability of UCS to declare stockholder dividends. State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. Consequently, dividend distribution is limited by Nebraska law. State insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that dividends up to the maximum amounts calculated under any applicable formula would be permitted. Moreover, state insurance regulators that have jurisdiction over the payment of dividends by our insurance subsidiary may in the future adopt statutory provisions more restrictive than those currently in effect. UCS may only declare and pay dividends to us after all of UCS’s obligations and regulatory requirements with the Nebraska Department of Insurance have been satisfied.
The declaration and payment of future dividends to holders of our Class A common stock will be at the discretion of our Board of Directors and will depend on many factors.
We may be unable to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us.
We use reinsurance to help manage our exposure to insurance risks. Reinsurance is a practice whereby one insurer, called the reinsurer, agrees to indemnify another insurer, called the ceding insurer, for all or part of the potential liability arising from one or more insurance policies issued by the ceding insurer. The availability and cost of reinsurance are subject to prevailing market conditions, both in terms of price and available capacity, which can affect our business volume and profitability. In addition, reinsurance programs are generally subject to renewal on an annual basis. We may not be able to obtain reinsurance in acceptable amounts and/or on acceptable terms from entities with satisfactory creditworthiness. If we are unable to obtain new reinsurance facilities or to renew expiring facilities, our net exposures would increase. In such event, if we are unwilling to bear an increase in our net exposure, we would have to reduce the level of our underwriting commitments, which would reduce our revenues.
Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, the reinsurance contracts. For example, many reinsurance policies now exclude coverage of terrorism. As a result, we, like other direct insurance companies, write insurance policies which to some extent do not have the benefit of reinsurance protection. These gaps in reinsurance protection expose us to greater risk and greater potential losses.
The expansion of our UCS insurance business to a nationwide insurance company may create both short-term and long-term constraints on our UCS operations.
We have expanded our insurance operations nationwide and hope to continue to expand these operations, which may create additional burdens on our UCS personnel as we manage potentially significantly larger operations. As a result, we anticipate we will likely need to hire additional personnel to assist the current management team in our expanded surety insurance operations, and we may not be successful in identifying and hiring qualified personnel on a timely basis, if at all.
Our insurance employees could take excessive risks, which could negatively affect our financial condition and business.
As a business which anticipates it will derive a significant portion of its business from the sale of surety and other insurance products, we are in the business of binding certain risks. The employees who conduct our business, including executive officers and other members of management, underwriters, product managers and other employees, do so in part by making decisions and choices that involve exposing us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining which business opportunities to pursue and other decisions. We endeavor, in the design and implementation of our compensation programs and practices, to avoid giving our employees incentives to take excessive risks. However, employees may take such risks regardless of the structure of our compensation programs and practices. Similarly, although we employ controls and procedures designed to monitor employees’ business decisions and prevent them from taking excessive risks, these controls and procedures may not be effective. If our employees take excessive risks, the impact of those risks could have a material adverse effect on our financial condition and business operations.
If actual insurance claims exceed our claims and claim adjustment expense reserves, or if changes in the estimated level of claims and claim adjustment expense reserves are necessary, our financial results could be materially and adversely affected.
As we grow our insurance operations, we will continue to establish loss and loss adjustment expense reserves. These reserves will not represent an exact calculation of liability, but instead will represent management estimates of what the ultimate settlement and administration of claims will cost, generally utilizing actuarial expertise and projection techniques, at a given accounting date. In particular, prior to 2017, UCS was writing business primarily in Massachusetts and has only been writing business outside of Massachusetts for a limited period of time. We do not currently have a long history of national underwriting experience and, as a result, rely on generally available industry data in establishing loss and loss adjustment expense reserves, and our estimates may be materially different from actual losses and adjustments incurred.
The process of estimating claims and claim adjustment expense reserves involves a high degree of judgment and is subject to a number of variables. These variables can be affected by both internal and external events, such as:
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changes in claims handling procedures
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adverse changes in loss cost trends
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economic conditions including general inflation
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legal trends and legislative changes
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limited claims experience in newer insurance products, and
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varying judgments and viewpoints of the individuals involved in the estimation process, among others.
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The impact of many of these items on ultimate costs for claims and claim adjustment expenses will be difficult to estimate. We also expect that claims and claim adjustment expense reserve estimation difficulties will also differ significantly by product line due to differences in claim complexity, the volume of claims, the potential severity of individual claims, the determination of occurrence date for a claim and reporting lags (the time between the occurrence of the policyholder event and when it is actually reported to the insurer). In addition, as a result of the COVID-19 pandemic, we suspended issuing surety bonds insuring landlords against rent payment defaults and established additional loss reserves to cover anticipated claims. The COVID-19 pandemic and other unforeseen events could result in insurance claims exceeding our loss and loss adjustment expense reserves.
The estimation of claims and claim adjustment expense reserves may also be more difficult during times of adverse or uncertain economic conditions due to unexpected changes in behavior of claimants and policyholders, including an increase in fraudulent reporting of exposures and/or losses, reduced maintenance of insured properties, increased frequency of small claims or delays in the reporting of claims.
We will attempt to consider all significant facts and circumstances known at the time claims and claim adjustment expense reserves are established or reviewed. Due to the inherent uncertainty underlying claims and claim adjustment expense reserve estimates, the final resolution of the estimated liability for claims and claim adjustment expenses will likely be higher or lower than the related claims and claim adjustment expense reserves at the reporting date. Therefore, actual paid losses in the future may yield a materially different amount than will be currently reserved.
Because of the uncertainties set forth above, additional liabilities resulting from an accumulation of insured events, may exceed the current related reserves. In addition, our estimate of claims and claim adjustment expenses may change. These additional liabilities or increases in estimates, or a range of either, cannot now be reasonably estimated and could materially and adversely affect our results of operations and/or our financial position.
Our efforts to develop new insurance products or expand in targeted markets may not be successful and may create enhanced risks.
A number of our planned business initiatives in the insurance markets we intend to serve will involve developing new products or expanding existing products in targeted markets. This includes the following efforts, from time to time, to protect or grow market share:
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We may develop products that insure risks we have not previously insured, contain new coverage or coverage terms or contain different commission terms.
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We may refine our underwriting processes.
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We may seek to expand distribution channels.
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We may focus on geographic markets within or outside of the United States where we have had relatively little or no market share.
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We may not be successful in introducing new products or expanding in targeted markets and, even if we are successful, these efforts may create enhanced risks. Among other risks:
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Demand for new products or in new markets may not meet our expectations.
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To the extent we are able to market new products or expand in new markets, our risk exposures may change, and the data and models we use to manage such exposures may not be as sophisticated or effective as those we use in existing markets or with existing products. This, in turn, could lead to losses in excess of our expectations.
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Models underlying underwriting and pricing decisions may not be effective.
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Efforts to develop new products or markets have the potential to create or increase distribution channel conflict.
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To develop new products or markets, we may need to make substantial capital and operating expenditures, which may also negatively impact results in the near term.
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If our efforts to develop new products or expand in targeted markets are not successful, our results of operations could be materially and adversely affected.
Adverse economic factors, including recession, inflation, the COVID-19 pandemic, periods of high unemployment or lower economic activity could result in the sale of fewer surety policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect the growth and profitability of our surety insurance business.
Factors, such as business revenue, economic conditions, the COVID-19 pandemic and other natural disasters, the volatility and strength of the capital markets and inflation can affect the business and economic environment. These same factors affect our ability to generate revenue and profits. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenues, the demand for insurance products is generally adversely affected, which directly affects our premium levels and profitability. Negative economic factors may also affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we can write, including with respect to our opportunities to underwrite profitable business. In an economic downturn, our customers may have less need for insurance coverage. A decline in our financial strength rating may adversely affect the amount of business we write.
Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best, as an important means of assessing the financial strength and quality of insurers. In setting its ratings, A.M. Best uses a quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. This analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best financial strength ratings range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation. As of the date of this Annual Report on Form 10-K, A.M. Best has assigned a financial strength rating of “A-” (Excellent) to our operating subsidiary, UCS. A.M. Best assigns ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders and such ratings are not evaluations directed to investors and are not a recommendation to buy, sell or hold our common stock or any other securities we may issue. A.M. Best periodically reviews our financial strength rating and may revise it downward or revoke it at its sole discretion based primarily on its analysis of our balance sheet strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile. Factors that could affect such analysis include but are not limited to:
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if we change our business practices from our organizational business plan in a manner that no longer supports A.M. Best’s rating;
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if unfavorable financial, regulatory or market trends affect us, including excess market capacity;
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if our losses exceed our loss reserves;
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if we have unresolved issues with government regulators;
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if we are unable to retain our senior management or other key personnel;
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if our investment portfolio incurs significant losses; or
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if A.M. Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating.
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These and other factors could result in a downgrade of our financial strength rating. A downgrade or withdrawal of our rating could result in any of the following consequences, among others:
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causing our current and future brokers and insureds to choose other, more highly-rated competitors;
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increasing the cost or reducing the availability of reinsurance to us;
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severely limiting or preventing us from writing new insurance contracts; or
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giving any future potential lenders the right to accelerate or call on any future debt we may incur.
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In addition, in view of the earnings and capital pressures recently experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or will increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels. We can offer no assurance that our rating will remain at its current level. It is possible that such reviews of us may result in adverse ratings consequences, which could have a material adverse effect on our financial condition and results of operations.
We may lack operational control over certain companies in which we invest.
We have made, and may continue to make, certain strategic investments in various businesses without acquiring all or a majority ownership stake in those businesses. To the extent that such investments represent a minority or passive stake in any business, we may have little to no participation, input or control over the management, policies, and operations of such business. Further, we may lack sufficient ownership of voting securities to impact, without the vote of additional equity holders, any matters submitted to stockholders or members of such business for a vote.
There is inherent risk in making minority equity investments in companies over which we have little to no control. Without control of the management and decision-making of these businesses, we cannot control their direction, strategy, policies and business plans, and we may be powerless to improve any declines in their performance, operating results and financial condition. If any company in which we are a minority investor suffers adverse effects, it may not be able to continue as a going business concern, and we may lose our entire investment.
We are subject to extensive financial reporting and related requirements for which our accounting and other management systems and resources may not be adequately prepared.
We are subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires us to conduct an annual management assessment of the effectiveness of our internal controls over financial reporting, and Section 404(b) requires our independent registered accounting firm to attest to and report on our management’s assessment of our internal controls. These reporting and other obligations place significant demands on our management, administrative, operational and accounting resources. In order to comply with these requirements, we may need to (i) upgrade our systems, (ii) implement additional financial and management controls, reporting systems and procedures, (iii) implement an internal audit function, and (iv) hire additional accounting, internal audit and finance staff. If we are unable to accomplish these objectives in a timely and effective manner, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to maintain effective internal controls could have a negative impact on our ability to manage our business and on our stock price. As a result of recent changes in federal securities laws, we are currently not required to have our independent auditor report on and attest to our management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)).
We may fail to maintain effective internal controls over external financial reporting or such controls may fail or be circumvented.
Federal securities laws require us to report on our internal controls over financial reporting, and our business and financial results could be adversely affected if we, or our independent registered public accounting firm, determine that these controls are not effective. If we do not maintain adequate financial and management personnel, processes, and controls, we may not be able to accurately report our financial performance on a timely basis, we may be otherwise unable to comply with the periodic reporting requirements of the SEC and the listing of our Class A common stock on NASDAQ could be suspended or terminated, each of which could have a material adverse effect on the confidence in our financial reporting, our credibility in the marketplace, and the trading price of our Class A common stock. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our committees and as executive officers.
Risks Related to Ownership of our Common Stock
Investors should not rely on the accuracy of forward-looking statements made by us.
To the extent that we or any of our officers were to provide any forward-looking statements, investors must recognize that any such forward-looking statements are based upon assumptions and estimates. We cannot make any representations as to the accuracy and reasonableness of such assumptions or the forward-looking statements based thereon. The validity and accuracy of those forward-looking statements will depend in large part on future events that we cannot foresee, and may or may not prove to be correct. Consequently, there can be no assurance that our actual operating results will correspond to any of the forward-looking statements. Accordingly, an investment in our common stock should not be made in reliance on forward-looking statements prepared or provided by us.
The price of our Class A common stock has been, and is likely to continue to be, volatile and may fluctuate substantially, which could result in substantial losses for purchasers of our Class A common stock.
Our Class A common stock price has been, and is likely to continue to be, volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your Class A common stock at or above your original purchase price. The market price for our Class A common stock may be influenced by many factors, many of which are out of our control, including those discussed in this “Risk Factors” section and elsewhere in this Annual Report and the following:
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our operating and financial performance and prospects;
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success of our competitors' products or services;
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regulatory or legal developments in the United States, especially changes in laws or regulations applicable to our products and services;
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additions or departures of key management personnel;
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market and industry perception of our success, or lack thereof, in pursuing our growth strategy;
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introductions or announcements of new products and services offered by us or significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors and the timing of such introductions or announcements;
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our ability to effectively manage our growth;
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our quarterly or annual earnings or those of other companies in the industries in which we participate;
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actual or anticipated changes in estimates to or projections of financial results, development timelines or recommendations by securities analysts;
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publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;
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the public’s potential adverse reaction to our intention not to publish any guidance with respect to future earnings;
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the public’s reaction to our press releases, other public announcements or our competitors’ businesses;
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market conditions in the billboard, insurance, broadband, real estate and other sectors in which we may operate as well as general economic conditions;
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our ability or inability to raise additional capital through the issuance of equity or debt or other arrangements and the terms on which we raise it;
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trading volume of our Class A common stock;
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the resale of Class A Common Stock held by our affiliates, including any exercise of registration rights by MBOC I, MBOC II and their limited partners of the 6,437,768 shares of our Class A common stock they currently own;
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changes in accounting standards, policies, guidance or principles;
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significant lawsuits, including stockholder litigation;
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general economic, industry and market conditions, including those resulting from natural disasters, severe weather events, terrorist attacks, epidemics and pandemics (such as the COVID-19 pandemic) and responses to such events; and
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accounting charges associated with reductions in the values of our publicly traded securities and losses in our investments in private companies/in our investments
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If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our Class A common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
The stock market in general, and market prices for the securities of companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our Class A common stock, regardless of our operating performance.
In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.
We are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our Class A common stock less attractive to investors.
We are currently a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act. “Smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in certain registration statements filed with the SEC and no requirement, as long as our revenues are below $100 million and the value of our Class A common stock as measured on certain dates, is less than $700 million, to have our independent auditor report on and attest to our management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)). Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
An active trading market for our Class A common stock may not be maintained.
Our Class A common stock began trading on the NASDAQ Capital Market on June 16, 2017. There is a risk that an active trading market for our shares may not be maintained. If an active market for our Class A common stock is not maintained, it may be difficult for you to sell your shares without depressing the market price for the shares or at all. The lack of an active market may also impair your ability to sell your shares at a time you wish to sell them or at a price that you consider reasonable and it may reduce the market value of your shares. An inactive trading market may also impair our ability to raise capital, to continue to fund operations by selling shares, and may impair our ability to acquire other companies or technologies by using our shares as consideration.
We will continue to incur increased costs as a result of operating as a public company in the United States.
As a public company in the United States, we have incurred and will continue to incur significant legal, accounting, insurance and other expenses, including costs associated with U.S. public company reporting requirements. We will also incur costs associated with NASDAQ listing requirements, the Sarbanes-Oxley Act and related rules implemented by the SEC. The expenses incurred by U.S. public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations would increase our legal and financial compliance costs and make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. In estimating these costs, we took into account expenses related to insurance, legal, accounting, and compliance activities, as well as other expenses not currently incurred. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our Board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and potentially civil litigation.
If a substantial number of shares of our Class A common stock become available for sale and are sold in a short period of time, the market price of our Class A common stock could decline.
If our current stockholders sell substantial amounts of our Class A common stock in the public market in a short period of time, the market price of our Class A common stock could decrease. The perception in the public market that our current stockholders might sell shares of Class A common stock could also create a perceived overhang and depress our market price. As of March 26, 2021, we have 26,175,555 shares of Class A common stock outstanding of which 10,638,750 shares are held by funds managed by Magnolia and Boulderado.
Additionally, entities controlled by Magnolia and Boulderado have partners and members that may seek to have their interests redeemed and/or entities controlled by Boulderado and Magnolia may make a distribution to their partners and members or may dissolve such entities. In any such event, entities controlled by Boulderado or Magnolia would report a transfer of shares on a Form 4 filed with the SEC, which may affect the market price of our Class A common stock.
Sales of our Class A common stock under Rule 144 could reduce the price of our Class A common stock and certain of our stockholders have the right to require the registration of up to 6,437,768 shares of our Class A common stock.
As of March 26, 2021, 11,334,431 shares of our Class A common stock are “restricted securities” or "controlled securities" within the meaning of Rule 144 under the Securities Act. As restricted securities, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. A sale under Rule 144 or under any exemption from the Securities Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of our Class A common stock. Magnolia BOC I and Magnolia BOC II are parties to a registration rights agreement with the Company pursuant to which the Company is obligated to register up to 6,437,768 shares of Class A common stock held by Magnolia BOC I and Magnolia BOC II upon the demand of these entities or their limited partners and also grants them the right to participate in future registrations of securities by us, subject to certain conditions. These registration rights continue until the earlier of March 31, 2033 or the date when an investor may resell the shares of our Class A common stock under Rule 144 as of the date when all registrable securities held by and issued to such investor may be sold under Rule 144 under the Securities Act during any 90 day period, provided such investor owns less than 1% of our outstanding Class A common stock.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our Class A common stock, the market price of our Class A common stock could decline.
The trading market for our Class A common stock likely will be influenced by the research and reports that equity and debt research analysts publish about the industry, us and our business. The market price of our Class A common stock could decline if one or more securities analysts downgrade our shares or if those analysts issue a sell recommendation or other unfavorable commentary or cease publishing reports about us or our business. If one or more of the analysts who elect to cover us downgrade our shares, the market price of our Class A common stock would likely decline.
Entities managed by Magnolia and Boulderado currently control all voting matters brought before our stockholders.
Currently, MCF and BP collectively own all of our Class B common stock and entities managed by Magnolia and Boulderado own a majority of our Class A common stock. As a result, Mr. Peterson and entities managed by Magnolia together control 42.4% of the aggregate voting power, and Mr. Rozek and entities managed by Boulderado together control 17.5% of the aggregate voting power. Moreover, it is possible that entities managed by Boulderado and Magnolia may increase their ownership in us if we sell additional shares of stock to them in connection with any future capital raise we may conduct. Also, each share of Class B common stock is entitled to cast 10 votes for all matters on which our stockholders vote, while each share of Class A common stock is entitled to cast only one vote. For the foreseeable future, entities managed by Magnolia and Boulderado will likely continue to control virtually all matters submitted to stockholders for a vote; may elect all of our directors; and, as a result, may control our management, policies, and operations. Our other stockholders will not have voting control over our actions, including the determination of other industries and markets that we may enter.
The interests of the entities managed by Magnolia and Boulderado may not coincide with the interests of other holders of our Class A common stock. The entities managed by Magnolia and Boulderado are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. The entities managed by Magnolia and Boulderado may also pursue, for their own managers’ or members’ accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as each of MCF and BP continue to own our Class B common stock or entities managed by Magnolia and Boulderado own a majority of our outstanding Class A common stock, they will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions.
Certain actions cannot be taken without the approval of MCF and BP due to their ownership of Class B common stock.
MCF and BP, the holders of record of the shares of Class B common stock, exclusively and as a separate class, are entitled to elect two directors to our Board of Directors, which we refer to as the “Class B Directors,” which number of Class B Directors may be reduced pursuant to the terms and conditions of the Amended and Restated Voting and First Refusal Agreement between MCF and BP entered into on June 19, 2015, which we refer to as the "Amended and Restated Voting and First Refusal Agreement." Any Class B Director may be removed without cause by, and only by, the affirmative vote of the holders of eighty percent (80%) of the shares of Class B common stock exclusively and as a separate class, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of such stockholders.
At any time when shares of Class B common stock are outstanding, we may not, without the affirmative vote of both of the Class B Directors:
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Amend, alter or otherwise change the rights, preferences or privileges of the Class B common stock, or amend, alter or repeal any provision of our certificate of incorporation or bylaws in a manner that adversely affects the powers, preferences or rights of the Class B common stock.
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Liquidate, dissolve or wind-up our business, effect any merger or consolidation or any other deemed liquidation event or consent to any of the foregoing.
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Create, or authorize the creation of, or issue or issue additional shares of Class B common stock, or increase the authorized number of shares of any additional class or series of capital stock.
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Increase or decrease the authorized number of directors constituting the Board of Directors.
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Hire, terminate, change the compensation of, or amend the employment agreements of, our executive officers.
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Purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of our capital stock.
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Create, or authorize the creation of, or issue, or authorize the issuance of any debt security, if our aggregate indebtedness for borrowed money following such action would exceed $10,000, or guarantee, any indebtedness except for our own trade accounts arising in the ordinary course of business.
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Make, or permit any subsidiary to make, any loan or advance outside of the ordinary course of business to any employee or director.
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Create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by us or permit any direct or indirect subsidiary to sell, lease, or otherwise dispose of all or substantially all of the assets of any subsidiary.
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Change our principal business, enter new lines of business, or exit the current line of business.
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Enter into any agreement involving the payment, contribution, or assignment by us or to us of money or assets greater than $10,000.
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Enter into or be a party to any transaction outside of the ordinary course of business with any our directors, officers, or employees or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such person or entity.
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Acquire, by merger, stock purchase, asset purchase or otherwise, any material assets or securities of any other corporation, partnership or other entity.
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Warrants issued by Yellowstone are accounted for as liabilities and the changes in value of these warrants could have a material effect on our financial results.
The statement issued by the staff of the SEC in April 2021 (the "SEC Statement") regarding the accounting and reporting considerations for warrants issued by SPACs focused on certain settlement terms and provisions related to certain tender offers following a business combination. The terms described in the SEC Statement are common in SPACs and are similar to the terms contained in the warrant agreement governing the warrants issued by Yellowstone. In response to the SEC Statement, and in light of the inclusion of Yellowstone’s financial results in our consolidated financial statements, we reevaluated the accounting treatment of Yellowstone’s warrants issued to the public in Yellowstone’s initial public offering, and determined to classify the public warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings. As a result, included on our balance sheet as of December 31, 2020 contained elsewhere in this Annual Report are derivative liabilities related to embedded features contained within the public warrants issued by Yellowstone. Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on these Yellowstone warrants each reporting period until such time as these warrants are no longer outstanding or we are no longer required to include Yellowstone’s financial results in our consolidated financial statements and that the amount of such gains or losses could be material.
We have identified a material weakness in our internal control over financial reporting in connection with our accounting for certain complex features associated with our ownership in Yellowstone, a special purpose acquisition company. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As described elsewhere in this Annual Report, we identified a material weakness in the Company’s internal control over financial reporting as of December 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, our management has concluded that the Company did not design and implement effective controls addressing the technical accounting complexities associated with the formation of and financial reporting for a special purpose acquisition company. This material weakness resulted in the restatement of our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020. Additionally, this material weakness could result in a misstatement of the recorded Yellowstone warrant liability, Yellowstone Class A common stock and related accounts and disclosures that would result in a material misstatement of the financial statements that would not be prevented or detected on a timely basis. As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of December 31, 2020.
To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, and have and continue to regularly engage independent outside accounting firms to review these and other complex accounting matters, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include performing an assessment of risks of material misstatement associated with the accounting and financial reporting for the special purpose acquisition company and evaluating the assignment of responsibilities associated with the accounting for the Company's investment in Yellowstone, including considering hiring additional resources and providing additional training to existing resources. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. For a discussion of management’s consideration of the material weakness identified related to a significant and unusual transaction related to us sponsoring a special purpose acquisition company and our accounting for our investment in Yellowstone, see Note 2 to the accompanying financial statements, as well as Part II, Item 9A: Controls and Procedures included in this Annual Report.
Any failure to maintain effective internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our Class A common stock is listed, the SEC or other regulatory authorities. In either case, there could result a material adverse effect on our business. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. Restated financial statements and failures in internal control may also cause us to fail to meet reporting obligations, negatively affect investor confidence in our management and the accuracy of our financial statements and disclosures, or result in adverse publicity and concerns from investors, any of which could have a negative effect on the price of our securities, subject us to regulatory investigations and penalties or stockholder litigation, and have a material adverse impact on our financial condition.
We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
Provisions in our charter documents and Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.
Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control that some stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, possibly depressing the market price of our common stock.
In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace members of our Board of Directors. Because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace members of our management team.
Our Board of Directors is authorized to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board of Directors. Our certificate of incorporation authorizes our Board of Directors to issue up to 1,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined by our Board of Directors at the time of issuance or fixed by resolution without further action by the stockholders. These terms may include voting rights, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of preferred stock could diminish the rights of holders of our common stock, and, therefore, could reduce the value of our common stock. In addition, specific rights granted to holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our Board of Directors to issue preferred stock could delay, discourage, prevent or make it more difficult or costly to acquire or effect a change in control, thereby preserving the current stockholders’ control.
Delaware law and certain provisions in our certificate of incorporation and bylaws may prevent efforts by our stockholders to change the direction or management of the Company.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation, as amended, and bylaws contain provisions that may make the acquisition of the Company more difficult, including, but not limited to, the following:
|
●
|
setting forth specific procedures regarding how our stockholders may nominate directors for election at stockholder meetings;
|
|
●
|
permitting our Board of Directors to issue preferred stock without stockholder approval; and
|
|
●
|
limiting the rights of stockholders to amend our bylaws.
|
These provisions could discourage, delay or prevent a transaction involving a change in control of our Company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions. In addition, because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team.
Because we do not intend to pay dividends for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We do not intend to pay dividends for the foreseeable future, and our stockholders will not be guaranteed, or have contractual or other rights, to receive dividends. Our Board of Directors may, in its discretion, modify or repeal our dividend policy or discontinue entirely the payment of dividends. The declaration and payment of dividends depends on various factors, including: our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our Board of Directors. In addition, state insurance regulators will limit the amount of dividends, if any, we can draw from our UCS insurance operations and Link’s credit agreement prohibits it from issuing dividends to us if as a result of any such dividend Link would be in violation of the financial covenants set forth in the credit agreement.
In addition, under the Delaware General Corporation Law, which we refer to as the “DGCL,” our Board of Directors may not authorize payment of a dividend unless it is either paid out of our surplus, as calculated in accordance with the DGCL, or if we do not have a surplus, it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
If we are, or were, a U.S. real property holding corporation, non-U.S. holders of our Class A common stock could be subject to U.S. federal income tax on the gain from its sale, exchange or other disposition.
If we are or ever have been a U.S. real property holding corporation, which we refer to as “USRPHC,” under the Foreign Investment in Real Property Tax Act of 1980 and applicable United States Treasury regulations, which we refer to collectively as the “FIRPTA Rules,” unless an exception applies, certain non-U.S. investors in our Class A common stock would be subject to U.S. federal income tax on the gain from the sale, exchange or other disposition of shares of our Class A common stock, and such non-U.S. investor would be required to file a United States federal income tax return. In addition, the purchaser of such Class A common stock would be required to withhold a portion of the purchase price and remit such amount to the U.S. Internal Revenue Service.
In general, under the FIRPTA Rules, a company is a USRPHC if its interests in U.S. real property comprise at least 50% of the fair market value of its assets. If we are or were a USRPHC, so long as our Class A common stock is “regularly traded on an established securities market” (as defined under the FIRPTA Rules), a non-U.S. holder who, actually or constructively, holds or held no more than 5% of our Class A common stock is not subject to U.S. federal income tax on the gain from the sale, exchange or other disposition of our common stock under FIRPTA Rules. In addition, other interests in equity of a USRPHC may qualify for this exception if, on the date such interest was acquired, such interests had a fair market value no greater than the fair market value on that date of 5% of our Class A common stock. Any of our Class A common stockholders that are non-U.S. persons should consult their tax advisors to determine the consequences of investing in our Class A common stock.
You may be diluted by the future issuance of additional Class A common stock in connection with acquisitions, sales of our securities or otherwise.
As of March 26, 2021, we had 12,663,329 shares of Class A common stock authorized but unissued under our certificate of incorporation. We will be authorized to issue these shares of Class A common stock and options, rights, warrants and appreciation rights relating to Class A common stock for consideration and on terms and conditions established by our Board of Directors in its sole discretion, subject to applicable laws and NASDAQ rules, whether in connection with acquisitions, financings or otherwise. Any Class A common stock that we issue would dilute the percentage ownership held by current investors.
In the future, we may issue our securities, including shares of our common stock, in connection with financings, investments or acquisitions. We regularly evaluate potential acquisition opportunities, including ones that would be significant to us. We cannot predict the timing of any contemplated transactions, and none are currently probable, but any pending transaction could be entered into shortly after the filing of this Annual Report on Form 10-K. The amount of shares of our Class A common stock issued in connection with a financing, investment or acquisition could constitute a material portion of our then-outstanding shares of Class A common stock. Any issuance of additional securities in connection with financings, investments or acquisitions may result in additional dilution to you.
Our authorized preferred stock exposes holders of our common stock to certain risks.
Our certificate of incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock. The authorized but unissued preferred stock constitutes what is commonly referred to as “blank check” preferred stock. This type of preferred stock may be issued by the Board of Directors from time to time on any number of occasions, without stockholder approval, as one or more separate series of shares comprised of any number of the authorized but unissued shares of preferred stock, designated by resolution of the Board of Directors stating the name and number of shares of each series and setting forth separately for such series the relative rights, privileges and preferences thereof, including, if any, the: (i) rate of dividends payable thereon; (ii) price, terms and conditions of redemption; (iii) voluntary and involuntary liquidation preferences; (iv) provisions of a sinking fund for redemption or repurchase; (v) terms of conversion to common stock, including conversion price and antidilution protection, and (vi) voting rights. Such preferred stock may provide our Board of Directors the ability to hinder or discourage any attempt to gain control of us by a merger, tender offer at a control premium price, proxy contest or otherwise. Consequently, the preferred stock could entrench our management. The market price of our Class A common stock could be depressed to some extent by the existence of the preferred stock. As of March 26, 2021, no shares of preferred stock have been issued.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws or (v) any action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our certificate of incorporation described in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
Our directors have limited liability under Delaware law.
Pursuant to our certificate of incorporation, and Delaware law, our directors are not liable to us or our stockholders for monetary damages for breach of fiduciary duty, except for: liability in connection with a breach of the duty of loyalty; acts or omissions not in good faith; acts or omissions that involve intentional misconduct or a knowing violation of law; dividend payments or stock repurchases that are illegal under Delaware law; or any transaction in which a director has derived an improper personal benefit. Accordingly, except in those circumstances, our directors will not be liable to us or our stockholders for breach of their duty.
Our ability to use our net operating loss carry forwards may be subject to limitation and may result in increased future tax liability.
Sections 382 and 383 of the Internal Revenue Code contain rules that limit the ability of a company that undergoes an “ownership change” to utilize its net operating loss and tax credit carry forwards and certain built-in losses recognized in years after the ownership change. An “ownership change” is generally defined in Section 382 of the Internal Revenue Code as any change in ownership of more than 50% of a corporation’s stock over a rolling three-year period by stockholders that own (directly or indirectly) 5% or more of the stock of a corporation, or arising from a new issuance of stock by a corporation. If an ownership change occurs, Section 382 generally imposes an annual limitation on the use of pre-ownership change net operating losses, which we refer to as “NOLs,” credits and certain other tax attributes to offset taxable income earned after the ownership change. The annual limitation is equal to the product of the applicable long-term tax exempt rate and the value of the company’s stock immediately before the ownership change. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and losses for the year. In addition, Section 383 generally limits the amount of tax liability in any post-ownership change year that can be reduced by pre-ownership change tax credit carryforwards. This could result in increased U.S. federal income tax liability for us if we generate taxable income in a future period. Limitations on the use of NOLs and other tax attributes could also increase our state tax liability. The use of our tax attributes will also be limited to the extent that we do not generate positive taxable income in future tax periods. As a result of these limitations, we may be unable to offset future taxable income (if any) with losses, or our tax liability with credits, before such losses and credits expire. Accordingly, these limitations may increase our federal income tax liability. NOLs generated during 2018 and thereafter do not expire.
As of December 31, 2020, we had NOLs of approximately $25.0 million. We continue to assess the impact of the 2018 private placement, our “at the market” offerings, our 2020 public offering and other transactions to determine whether an “ownership change,” as defined in Section 382 of the Internal Revenue Code, has occurred and, if so, the limitations on our ability to utilize NOLs. Additionally, it is possible that future transactions may cause us to undergo one or more ownership changes. Certain of these NOLs may be also at risk of limitation in the event of a future ownership change.
We have U.S. federal and state NOLs. In general, NOLs in one state cannot be used to offset income in any other state. Accordingly, we may be subject to tax in certain jurisdictions even if we have unused NOLs in other jurisdictions. Also, each jurisdiction in which we operate may have its own limitations on our ability to utilize NOLs or tax credit carryovers generated in that jurisdiction. These limitations may increase our federal, state, and/or foreign income tax liability.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters is located in Omaha, Nebraska. As of December 31, 2020, we maintained offices in various locations in the United States with leases expiring between 2021 and 2033. In connection with the acquisition of various billboard sites, we own a small percentage of these sites and in most instances lease the sites from third parties. Land leases related to the structures are typically paid in advance for periods ranging from one to twelve months. The lease contracts include those with fixed payments and those with escalating payments. Some of the lease contracts contain a base rent payment plus an additional amount up to a particular percentage of revenue. In the opinion of our management, our properties are adequate and suitable for our business as presently conducted and are adequately maintained. We also own several parcels in Arizona used by our broadband business for storage of equipment.
Item 3. Legal Proceedings.
Due to the nature of our business, we are, from time to time and in the ordinary course of business, involved in routine litigation or subject to disputes or claims related to our business activities, including, without limitation, workers’ compensation claims and employment-related disputes. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effect individually or in the aggregate on our financial condition, cash flows or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statement of Cash Flows (Continued)
|
Supplemental Schedules of Non-cash Investing and Financing Activities
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Payable as consideration for business acquisition
|
|
|
-
|
|
|
|
779,296
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
-
|
|
|
|
85,294
|
|
|
|
|
|
|
|
|
|
|
Class A common stock issued for business acquisition
|
|
|
-
|
|
|
|
710,103
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in redeemable noncontrolling interest of subsidiary
|
|
|
(757,930
|
)
|
|
|
378,821
|
|
The accompanying notes are an integral part of the consolidated financial statements.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 1.
|
ORGANIZATION AND BACKGROUND
|
Boston Omaha was organized on August 11, 2009 with present management taking over operations in February 2015. Our operations include (i) our outdoor advertising business with multiple billboards across Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia, and Wisconsin; (ii) our insurance business that specializes in surety bond underwriting and brokerage; (iii) our broadband business that provides high-speed broadband services to its customers, and (iv) our minority investments primarily in real estate services, homebuilding, and banking. Our billboard operations are conducted through our subsidiary, Link Media Holdings, LLC, our insurance operations are conducted through our subsidiary, General Indemnity Group, LLC, and our broadband operations are conducted through our subsidiary, 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 2020, we have completed seventeen additional acquisitions of outdoor advertising businesses.
On April 20, 2016, we completed an acquisition of a surety bond brokerage business. On December 7, 2016, we acquired a fidelity and surety bond insurance company. From July through November 2017 we completed the acquisition of two surety brokerage businesses and acquired a majority stake in a third surety brokerage business, thus expanding our operations in insurance. During the first quarter of 2020, we purchased the non-controlling interest in our third surety brokerage business from the non-controlling owner.
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 September 25, 2020, we filed a Registration Statement on Form S-1 with the Securities and Exchange Commission for a proposed initial public offering of units of a special purpose acquisition company (“SPAC”) named Yellowstone Acquisition Company, which we refer to as “Yellowstone”. Yellowstone completed its initial public offering on October 26, 2020 (see Note 18 for further discussion).
NOTE 2.
|
Restatement of Previously Issued Financial Statements
|
We previously accounted for our investment in Yellowstone under the equity method of accounting. In light of the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) issued by the staff of the SEC dated April 12, 2021 (the “SEC Staff Statement”), the Company re-evaluated its accounting for its investment in Yellowstone under Accounting Standards Codification 810, Consolidation.
Based on our evaluation of the facts and circumstances, we concluded that our investment in Yellowstone, which provides us with the right, among others, to appoint the board members of Yellowstone, represents a controlling financial interest in the entity requiring consolidation of the entity. As a result, we are reclassifying our investment in Yellowstone to reflect the full consolidation of Yellowstone. Our previously recognized investment in Yellowstone, which consisted of shares of Yellowstone's Class B common stock accounted for under the equity method of accounting as well as warrants to purchase shares of Yellowstone's Class A common stock which were accounted for as derivative assets recorded at fair value, is now eliminated in consolidation.
We are also correcting an error within our Statement of Cash Flows relating to the reporting of funds held as collateral to present them as restricted cash with the associated cash inflows included within cash flows from financing activities. The funds held as collateral reside within money market accounts and we are restricted as to their use, but the funds meet the definition of cash and cash equivalents and should be reported within the statement of cash flows.
The below table summarizes the effect of the restatement on each financial statement line item as of the date, and for the period, indicated. The effects of the restatement are incorporated within Notes 3, 4, 7, 9, 10, 11, 16, 18 and 19 to the financial statements.
|
|
December 31, 2020
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,543,778
|
|
|
$
|
1,122,194
|
|
|
$
|
44,665,972
|
|
Investments held in trust - special purpose acquisition company
|
|
|
-
|
|
|
|
138,716,226
|
|
|
|
138,716,226
|
|
Prepaid expenses
|
|
|
1,794,155
|
|
|
|
403,187
|
|
|
|
2,197,342
|
|
Total Current Assets
|
|
|
188,807,710
|
|
|
|
140,241,607
|
|
|
|
329,049,317
|
|
Investments
|
|
|
24,234,782
|
|
|
|
(4,786,263
|
)
|
|
|
19,448,519
|
|
Investments in unconsolidated affiliates
|
|
|
25,315,696
|
|
|
|
(4,401,800
|
)
|
|
|
20,913,896
|
|
Total Other Assets
|
|
|
272,337,903
|
|
|
|
(9,188,066
|
)
|
|
|
263,149,837
|
|
Total Assets
|
|
|
509,653,885
|
|
|
|
131,053,541
|
|
|
|
640,707,426
|
|
Accounts payable and accrued expenses
|
|
|
6,361,778
|
|
|
|
463,303
|
|
|
|
6,825,081
|
|
Deferred underwriting fee payable
|
|
|
-
|
|
|
|
4,759,615
|
|
|
|
4,759,615
|
|
Total Current Liabilities
|
|
|
28,647,331
|
|
|
|
5,222,918
|
|
|
|
33,870,249
|
|
Warrants liability
|
|
|
-
|
|
|
|
8,431,315
|
|
|
|
8,431,315
|
|
Total liabilities
|
|
|
100,459,787
|
|
|
|
13,654,233
|
|
|
|
114,114,020
|
|
Redeemable Noncontrolling interest
|
|
|
6,318,389
|
|
|
|
138,708,760
|
|
|
|
145,027,149
|
|
Accumulated deficit
|
|
|
(21,356,164
|
)
|
|
|
(21,309,452
|
)
|
|
|
(42,665,616
|
)
|
Total Stockholders' Equity (Deficit)
|
|
$
|
402,875,709
|
|
|
$
|
(21,309,452
|
)
|
|
$
|
381,566,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
3,530,278
|
|
|
$
|
656,563
|
|
|
$
|
4,186,841
|
|
General and administrative
|
|
|
6,283,582
|
|
|
|
312,290
|
|
|
|
6,595,872
|
|
Total Costs and Expenses
|
|
|
49,769,517
|
|
|
|
968,853
|
|
|
|
50,738,370
|
|
Net Loss from Operations
|
|
|
(4,026,054
|
)
|
|
|
(968,853
|
)
|
|
|
(4,994,907
|
)
|
Equity in income (loss) of unconsolidated affiliates
|
|
|
5,187,159
|
|
|
|
388,412
|
|
|
|
5,575,571
|
|
Unrealized (loss) gain on securities
|
|
|
(8,260,941
|
)
|
|
|
(2,138,991
|
)
|
|
|
(10,399,932
|
)
|
Gain on disposition of investments
|
|
|
5,701,909
|
|
|
|
12,298
|
|
|
|
5,714,207
|
|
Remeasurement of warrant liability
|
|
|
-
|
|
|
|
(217,582
|
)
|
|
|
(217,582
|
)
|
Income (Loss) Before Income Taxes
|
|
|
496,464
|
|
|
|
(2,924,716
|
)
|
|
|
(2,428,252
|
)
|
Noncontrolling interest in subsidiary (income) loss
|
|
|
(40,681
|
)
|
|
|
2,419,844
|
|
|
|
2,379,163
|
|
Net income (loss) Attributable to Common Stockholders
|
|
|
455,783
|
|
|
|
(504,872
|
)
|
|
|
(49,089
|
)
|
Basic and Diluted Net Loss per Share
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
496,464
|
|
|
$
|
(2,924,716
|
)
|
|
$
|
(2,428,252
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
(5,187,159
|
)
|
|
|
(388,412
|
)
|
|
|
(5,575,571
|
)
|
Unrealized losses (gains) on securities
|
|
|
8,260,941
|
|
|
|
2,138,991
|
|
|
|
10,399,932
|
|
Remeasurement of warrant liability
|
|
|
-
|
|
|
|
217,582
|
|
|
|
217,582
|
|
Issuance costs related to warrant liability
|
|
|
-
|
|
|
|
509,899
|
|
|
|
509,899
|
|
Gain on disposition of investments
|
|
|
(5,701,909
|
)
|
|
|
(12,298
|
)
|
|
|
(5,714,207
|
)
|
Prepaid expenses
|
|
|
(353,930
|
)
|
|
|
(403,187
|
)
|
|
|
(757,117
|
)
|
Accounts payable and accrued expenses
|
|
|
276,806
|
|
|
|
463,306
|
|
|
|
740,112
|
|
Net Cash Provided by Operating Activities
|
|
|
5,573,281
|
|
|
|
(398,835
|
)
|
|
|
5,174,446
|
|
Purchase of Yellowstone warrants
|
|
|
(7,719,779
|
)
|
|
|
7,719,779
|
|
|
|
-
|
|
Investment in unconsolidated affiliates
|
|
|
(5,715,625
|
)
|
|
|
(284,375
|
)
|
|
|
(6,000,000
|
)
|
Proceeds from sales of investments
|
|
|
513,815,641
|
|
|
|
265,999,999
|
|
|
|
779,815,640
|
|
Purchase of investments
|
|
|
(488,315,757
|
)
|
|
|
(404,701,849
|
)
|
|
|
(893,017,606
|
)
|
Net Cash Used in Investing Activities
|
|
|
(38,133,518
|
)
|
|
|
(131,266,446
|
)
|
|
|
(169,399,964
|
)
|
Proceeds from issuance of stock within SPAC
|
|
|
-
|
|
|
|
135,988,980
|
|
|
|
135,988,980
|
|
Receipt of funds held as collateral
|
|
|
-
|
|
|
|
10,006,075
|
|
|
|
10,006,075
|
|
Offering costs within SPAC
|
|
|
-
|
|
|
|
(3,201,505
|
)
|
|
|
(3,201,505
|
)
|
Net Cash Provided by Financing Activities
|
|
|
60,012,252
|
|
|
|
142,793,550
|
|
|
|
202,805,802
|
|
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
|
|
$
|
27,452,015
|
|
|
$
|
11,128,269
|
|
|
$
|
38,580,284
|
|
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated)
|
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 a variable interest entity, Yellowstone, 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.
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.
Our consolidated subsidiaries 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”
General Indemnity Group, LLC which we refer to as “GIG”
The Warnock Agency, Inc. which we refer to as “Warnock”
United Casualty and Surety Insurance Company which we refer to as “UCS”
Surety Support Services, Inc. which we refer to as “SSS”
South Coast Surety Insurance Services, LLC which we refer to as “SCS”
Boston Omaha Investments, LLC which we refer to as “BOIC”
Boston Omaha Asset Management, LLC which we refer to as “BOAM”
BOAM BFR LLC which we refer to as "BOAM BFR"
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”
Fiber is Fast, LLC which we refer to as "FIF"
FIF AireBeam LLC, which we refer to as “AireBeam”
FIF Utah LLC, which we refer to as “FIF Utah”
Yellowstone Acquisition Company, which we refer to as "Yellowstone"
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (Continued)
|
Cash and Cash Equivalents
For purposes of the statement of cash flows, we consider all highly liquid investments, with the exception of U.S. Treasury securities, purchased with an original maturity of three months or less to be cash equivalents.
Restricted Cash
We have cash that is restricted for the payment of insurance premiums.
Accounts Receivable
Billboard Rentals
Accounts receivable are recorded at the invoiced amount, net of advertising agency commissions, sales discounts, and allowances for doubtful accounts. We evaluate the collectability of accounts receivable based on our knowledge of our customers and historical experience of bad debts. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific allowance to reduce the amounts recorded to what we believe will be collected. For all other customers, we recognize reserves for bad debt based upon historical experience of bad debts as a percentage of revenue, adjusted for relative improvement or deterioration in its agings and changes in current economic conditions. As of December 31, 2020 and 2019, the allowance for doubtful accounts was $217,871 and $127,635, respectively.
Insurance
Accounts receivable consists of premiums and anticipated salvage. All of the receivables have payment terms of less than twelve months.
Anticipated salvage is the amount we expect to receive from principals pursuant to indemnification agreements.
Broadband
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. We evaluate the collectability of accounts receivable based on our knowledge of our customers and historical experience of bad debts. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations, we record a specific allowance to reduce the amounts recorded to what we believe will be collected. As of December 31, 2020, the allowance for doubtful accounts was $110,651.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (Continued)
|
Deferred Policy Acquisition Costs
Policy acquisition costs consist primarily of commissions to agents and brokers and premium taxes, fees, and assessments. Such costs that are directly related to the successful acquisition of new or renewal insurance contracts are deferred and amortized over the related policy period, generally one to three years. The recoverability of these costs is analyzed by management quarterly, and if determined to be impaired, is charged to expense. We do not consider anticipated investment income in determining whether a premium deficiency exists. All other acquisition expenses are charged to operations as incurred.
Property and Equipment
Property and equipment are carried at cost less depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which range from four years to twenty years as follows:
|
|
Years
|
|
|
|
|
|
|
Structures
|
|
|
15
|
|
Digital displays and electrical
|
|
|
10
|
|
Static and tri-vision displays
|
|
|
10 to 15
|
|
Fiber, towers, and broadband equipment
|
|
|
5 to 20
|
|
Vehicles, equipment, and furniture
|
|
|
4 to 7
|
|
Maintenance and repair costs are charged against income as incurred. Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset.
Periodic internal reviews are performed to evaluate the reasonableness of the depreciable lives for property and equipment. Actual usage, physical wear and tear, replacement history, and assumptions about technology evolution are reviewed and evaluated to determine the remaining useful lives of the assets. Remaining useful life assessments are made to anticipate the loss in service value that may precede physical retirement, as well as the level of maintenance required for the remaining useful life of the asset.
Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset or asset group before interest expense. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset or asset group. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.
Acquisitions
For transactions that meet the definition of a business combination, we allocate the purchase price, including any contingent consideration, to the assets acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition with any excess of the purchase price paid over the estimated fair value of net assets acquired recorded as goodwill. The determination of the final purchase price and the acquisition-date fair value of identifiable assets acquired and liabilities assumed may extend over more than one period and result in adjustments to the preliminary estimate recognized in the prior period financial statements. For transactions which meet the definition of asset purchases, we proportionally allocate the purchase price to the assets based on their relative fair value acquired and the liabilities assumed at their estimated fair values as of the date of the acquisition.
The fair value of the assets acquired and liabilities assumed is typically determined by using either estimates of replacement costs or discounted cash flow valuation methods. When determining the fair value of tangible assets acquired, we must estimate the cost to replace the asset with a new asset, adjusted for an estimated reduction in fair value due to age of the asset, and the economic useful life. When determining the fair value of intangible assets acquired, we must estimate the applicable discount rate and the timing and amount of future cash flows. Key assumptions utilized in estimating the future cash flows expected to be generated by each reporting unit primarily relate to forecasted revenues and premiums earned.
Goodwill
Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is subject to an annual impairment test. We designated October 1 as the date of our annual goodwill impairment test. We are required to identify our reporting units and determine the carrying value of each reporting unit. We analyze financial information of our operations to identify discrete segments that constitute a reporting unit. We assign assets acquired and liabilities assumed in business combinations to those reporting units. We have identified four reporting units: billboard operations, broadband operations, insurance brokerage operations, and insurance carrier operations. We are required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, we would be required to book an impairment loss. For our annual review of reporting units, we employ a third party valuation expert.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (Continued)
|
Goodwill (Continued)
We conduct a qualitative assessment by examining relevant events and circumstances which could have a negative impact on our goodwill, including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, reporting unit dispositions and acquisitions, our market capitalization and other relevant events specific to us. If, after assessing the totality of events or circumstances described above, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will perform a quantitative impairment test. If industry and economic conditions deteriorate, we may be required to assess goodwill impairment before the next annual test, which could result in impairment charges. The discounted cash flow approach that we use for valuing goodwill as part of the impairment testing approach involves estimating future cash flows expected to be generated from the related assets, discounted to their present value using a risk-adjusted discount rate.
We performed our annual measurement for impairment of the goodwill of our reporting units and concluded the fair value of each reporting unit exceeded its carrying amount at its annual impairment test date on October 1, 2020 and 2019; therefore, we were not required to recognize an impairment loss.
During 2020 and 2019, goodwill of more than $18,150,000 and $3,500,000, respectively, was recorded in connection with acquisitions in our billboard and broadband segments.
Purchased Intangibles and Other Long-Lived Assets
We amortize intangible assets with finite lives over their estimated useful lives, which range between two and fifty years as follows:
|
|
Years
|
|
|
|
|
|
|
Customer relationships
|
|
|
3 to 10
|
|
Permits, licenses, and lease acquisition costs
|
|
|
10 to 50
|
|
Noncompetition and nonsolicitation agreements
|
|
|
2 to 5
|
|
Technology, trade names, and trademarks
|
|
|
2 to 20
|
|
Site location
|
|
|
15
|
|
Purchased intangible assets, including long-lived assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors considered in reviewing the asset values include consideration of the use of the asset, the expected life of the asset, and regulatory or contractual provisions related to such assets. Market participation assumptions are compared to our experience and the results of the comparison are evaluated. For finite-lived intangible assets, the period over which the assets are expected to contribute directly to future cash flows is evaluated against our historical experience. Impairment losses are recognized only if the carrying amount exceeds its fair value.
Asset Retirement Obligations
We are required to record the present value of obligations associated with the retirement of tangible long-lived assets in the period in which the obligation is incurred. The liability is capitalized as part of the long-lived asset’s carrying amount. With the passage of time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. Our asset retirement obligations relate to the dismantlement, removal, site reclamation, and similar activities related to the decommissioning of our billboard structures and broadband towers.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (Continued)
|
Investments, Short-term and Long-term
Investments include certificates of deposits, U.S Treasury securities, marketable equity securities, investments in corporate bonds, and equity investments as discussed below. U.S. Treasury securities held by our insurance entities are classified as held-to-maturity and are accounted for at amortized cost. We have both the intent and ability to hold the bonds to maturity. U.S. Treasury securities held by non-insurance entities are classified as trading securities and are accounted for at fair value. Unrealized holding gains and losses during the period are included in earnings. Marketable equity securities are stated at fair value. Certificates of deposit are accounted for at carrying value with no adjustments for changes in fair value. Premiums and discounts are amortized or accreted over the lives of the related fixed maturities as an adjustment to the yield using the effective interest method. Dividend and interest income are recognized when earned. Realized investment gains and losses are included in earnings.
Equity Investments
Our equity investments consist of investment in two private companies in which we do not have the ability to exercise significant influence over their operating and financial activities. These investments are carried at cost as there is no market for the common stock and LLC units, accordingly, no quoted market price is available. The investments are tested for impairment, at least annually, and more frequently upon the occurrences of certain events. We have adopted the provisions of ASU 2016-01 and use the measurement alternative, defined as cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.
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. 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.
Funds Held as Collateral Assets
Funds held as collateral assets consist principally of cash collateral received from principals to guarantee performance on surety bonds issued by us, as well as all other contractual obligations of the principals to the surety.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The more significant areas requiring the use of management estimates relate to allocation of asset acquisition price between tangible and intangible assets, useful lives for depreciation, amortization and accretion, impairment of goodwill, valuation of insurance loss reserves, and the valuation of deferred tax assets and liabilities. Accordingly, actual results could differ from those estimates. During the fourth quarter of 2019, management extended the useful lives of certain intangible assets (see further discussion within Note 8).
Fair Value Measurements
We determine the fair value of our financial instruments using the fair value hierarchy, which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Subsequent Events
We have performed an evaluation of subsequent events through the date on which the financial statements are issued.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (Continued)
|
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. Contracts which began prior to January 1, 2019 are accounted for under ASC 840, Leases and will continue to be accounted for as a lease until the contract ends or is modified. Contract revenues, under ASC 840, Leases and ASC 606, Revenue from Contracts with Customers, are recognized ratably over their contract life.
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. Production services revenue recognized in 2020 and in 2019 was $1,373,339 and $1,341,995, respectively.
Deferred Revenues
We record deferred revenues when cash payments are received in advance of being earned or when we have an unconditional right to consideration before satisfying our performance obligation. The term between invoicing and when a payment is due is not significant. For certain services we require payment before the product or services are delivered to the customer. The balance of deferred revenue is considered short-term and will be recognized in revenue within twelve months.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (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 of $595,750 and $726,764 for the years ended December 31, 2020 and 2019, 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.
Right of Use Assets and Lease Liabilities
Right of use, which we refer to as “ROU", assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at the lease commencement date. We have elected not to recognize ROU assets and lease liabilities for short-term leases for all classes of underlying assets. Short-term leases are leases with terms greater than 1 month, but less than 12 months.
Redeemable Noncontrolling Interest (As Restated)
Redeemable noncontrolling interests are interests in subsidiaries that are redeemable outside of our control either for cash or other assets. These interests are classified as mezzanine equity and measured at the estimated redemption value at the end of each reporting period. The resulting increases or decreases in the estimated redemption amount are effected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in capital. At December 31, 2020, Redeemable Noncontrolling Interests recorded within our Consolidated Balance Sheets relate to our Broadband subsidiaries (see Note 7) and our Special Purpose Acquisition Company (see Note 18). At December 31, 2019, the Redeemable Noncontrolling Interest recorded within our Consolidated Balance Sheets relates to one of our Insurance subsidiaries which was redeemed during 2020.
Losses 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.
Segment Information
Operating segments are defined as the components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and growth opportunities of each respective segment.
Our current operations for the years ended December 31, 2020 and 2019 include the outdoor advertising industry, the broadband services industry, and the insurance industry.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (Continued)
|
Earnings Per Share
Basic income (loss) per common share is computed by dividing the net income (loss) available to Class A common stockholders and Class B common stockholders by the weighted average number of Class A common and Class B common shares outstanding during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. In a loss year, dilutive
common equivalent shares are excluded from the loss per share calculation as the effect would be anti-dilutive. For the years ended December 31, 2020 and 2019, we had potentially dilutive securities in the form of stock warrants.
Income Taxes
We account for income taxes in accordance with ASC Topic 740 which requires us to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting, any available operating loss or tax credit carry forwards. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of certain assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future federal income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.
We recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2020 and 2019, we recognized no interest and penalties. As of December 31, 2020 and 2019, we had no accruals for interest and penalties.
Class A Common Stock Subject to Possible Redemption (As Restated)
As discussed in Note 18, all of the 13,598,898 Class A Common Stock sold as part of the Units in Yellowstone's Public Offering contain a redemption feature which allows for the redemption of such public shares in connection with Yellowstone's liquidation, if there is a stockholder vote or tender offer in connection with a business combination and in connection with certain amendments to Yellowstone's second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are effected by charges against additional paid in capital and accumulated deficit. At December 31, 2020, Yellowstone's Class A Common Stock subject to possible redemption is included within "Redeemable noncontrolling Interest" in our Consolidated Balance Sheets.
Warrants Liability (As Restated)
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. We account for warrants for shares of Yellowstone's common stock as liabilities at fair value on the balance sheet. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized in our statement of operations. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The initial fair value of the warrants was estimated using a binomial lattice model (see Note 10), with subsequent measurement based on observable trading prices of the warrants.
COVID-19 Impact
A new strain of novel coronavirus which causes a severe respiratory disease (“COVID-19”) was identified in 2019, and subsequently declared a pandemic in 2020 by the World Health Organization, affecting the populations of the United States as well as many foreign countries. The recent COVID-19 outbreak has created significant volatility and economic disruption and the impact on our future operations and financial position is uncertain. The outbreak of COVID-19 may have materially negatively impacted, and may continue to materially negatively impact our business, financial performance and condition, operating results and cash flows and the value of our investments in other businesses. However, the significance, extent and duration of such impact remain largely uncertain and dependent on future developments that cannot be accurately predicted at this time, such as the continued severity, duration, transmission rate and geographic spread of COVID-19 in the United States and other regions in which we operate, the extent and effectiveness of the containment measures taken, and the response of the overall economy, the financial markets and the population, particularly in areas in which we operate, once the current containment measures are lifted. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. As a result, we cannot provide an estimate of the overall impact of the COVID-19 pandemic on our business. Nevertheless, COVID-19 presents material uncertainty and risk with respect to our business, financial performance and condition, operating results and cash flows.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 3.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (As Restated) (Continued)
|
Recent Accounting Pronouncements
In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
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 adoption of the standard did not have a significant effect on our consolidated results of operations or cash flows. Note 14 contains further details.
On May 20, 2020, the SEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information. As noted in the final rule, the amendments “are intended to improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure.” Among other changes, the final rule modifies the significance tests and improves the disclosure requirements for (i) acquired or to be acquired businesses, (ii) real estate operations, and (iii) pro forma financial information. The final rule is applicable for a registrant’s fiscal year beginning after December 31, 2020. We adopted this guidance effective January 1, 2020.
In December 2019, the FASB issued guidance which simplifies the accounting for income taxes by removing certain exceptions to the general principles and improves consistent application of GAAP for other areas by clarifying and amending existing guidance. This guidance is effective January 1, 2021. We do not expect adoption will have a material impact on our disclosures.
In January 2020, the FASB issued ASU No. 2020-01, Clarifying the Interactions between Topic 321, Investments—Equity Securities, Topic 323, Investments—Equity Method and Joint Ventures, and Topic 815, Derivatives and Hedging. This ASU clarifies that when accounting for certain equity securities, a company should consider observable transactions before applying or upon discontinuing the equity method of accounting for the purposes of applying the measurement alternative. This guidance is effective January 1, 2021, with early adoption permitted. We do not expect adoption will have a material impact on our financial statements.
NOTE 4.
|
RESTRICTED CASH (As Restated)
|
Restricted cash consists of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Insurance premium escrow
|
|
$
|
280,269
|
|
|
$
|
343,518
|
|
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.
|
|
December 31,
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,665,972
|
|
|
$
|
16,028,514
|
|
Funds held as collateral
|
|
|
10,006,075
|
|
|
|
-
|
|
Restricted cash
|
|
|
280,269
|
|
|
|
343,518
|
|
|
|
|
|
|
|
|
|
|
Total Cash, Cash Equivalents, and Restricted Cash as Presented in the Consolidated Statements of Cash Flows
|
|
$
|
54,952,316
|
|
|
$
|
16,372,032
|
|
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 5.
|
ACCOUNTS RECEIVABLE
|
Accounts receivable consist of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Trade accounts
|
|
$
|
3,537,864
|
|
|
$
|
3,346,215
|
|
Premiums
|
|
|
832,221
|
|
|
|
971,963
|
|
Allowance for doubtful accounts
|
|
|
(328,522
|
)
|
|
|
(127,635
|
)
|
|
|
|
|
|
|
|
|
|
Total Accounts Receivable, net
|
|
$
|
4,041,563
|
|
|
$
|
4,190,543
|
|
NOTE 6.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Structures and displays
|
|
$
|
42,858,525
|
|
|
$
|
41,320,458
|
|
Fiber, towers, and broadband equipment
|
|
|
11,358,650
|
|
|
|
-
|
|
Vehicles and equipment
|
|
|
2,522,810
|
|
|
|
1,245,210
|
|
Office furniture and equipment
|
|
|
2,150,729
|
|
|
|
990,810
|
|
Accumulated depreciation
|
|
|
(10,382,442
|
)
|
|
|
(6,731,459
|
)
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment, net
|
|
$
|
48,508,272
|
|
|
$
|
36,825,019
|
|
Depreciation expense for the years ended December 31, 2020 and 2019 was $3,704,700, and $3,102,168 respectively. During the years ended December 31, 2020 and 2019, we incurred losses on the disposition of assets in the amount of $199,555 and $223,890, respectively.
F-
23
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 7. BUSINESS ACQUISITIONS (As Restated)
2020 Acquisitions
During the year ended December 31, 2020, we completed two acquisitions of broadband service providers 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.
Broadband Acquisitions
FIF AireBeam
On March 10, 2020, FIF AireBeam, LLC, our wholly-owned subsidiary, acquired substantially all of the business assets of FibAire Communications, LLC, which we refer to as "FibAire", a broadband services provider, as well as other assets used in the business operations owned by entities related to FibAire. The acquisition was accounted for as a business combination under the provisions of ASC 805. Under the terms of the asset purchase agreement, all purchased assets were sold on a debt-free basis to AireBeam. The total purchase price of $13,712,491 was paid 90% in cash and the remaining 10% of the purchase price was paid by issuing to FibAire 10% of the outstanding equity of AireBeam. $1,851,186 of the cash proceeds will be held in escrow for a minimum of one year from the closing to provide indemnification for certain representations and warranties made by FibAire in the asset purchase agreement. At any time, FibAire has the option, but not the obligation, to sell AireBeam its entire ownership interest in AireBeam. AireBeam would be obligated to purchase the units and pay for the purchase over a three-year period if FibAire elects to exercise this option. At any time after December 31, 2023, AireBeam has the option, but not the obligation, to purchase FibAire’s ownership interest in AireBeam, with payment due in full upon exercise of the option. The purchase price for the units under either of these put/call options is based upon a multiple of earnings before interest, taxes, depreciation, amortization, and certain other expenses. The 10% interest outstanding owned by FibAire is included within "Redeemable Noncontrolling interest" in our consolidated Balance Sheet.
The following is a summary of the allocation of the purchase price, which includes the final fair value allocation of the assets acquired and liabilities assumed:
|
|
December 31, 2020
|
|
Assets Acquired
|
|
|
|
|
Property, plant and equipment
|
|
$
|
3,112,459
|
|
Customer relationships
|
|
|
1,480,000
|
|
Permits
|
|
|
260,000
|
|
Trade names and trademarks
|
|
|
970,000
|
|
Goodwill
|
|
|
7,124,158
|
|
Software
|
|
|
990,000
|
|
Right of use assets
|
|
|
337,966
|
|
Other
|
|
|
184,737
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
14,459,320
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and deferred revenue
|
|
|
317,768
|
|
Lease liabilities
|
|
|
337,966
|
|
Other
|
|
|
91,095
|
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
746,829
|
|
|
|
|
|
|
Total
|
|
$
|
13,712,491
|
|
AireBeam's results of operations are recognized from March 10, 2020, the date of acquisition, through December 31, 2020. For the year ended December 31, 2020, revenues and earnings recognized from the date of acquisition in our consolidated statement of operations were $3,772,109 and $364,125, respectively. Acquisition costs of $287,934 were expensed in professional fees during the year. Included in our property, plant, and equipment caption are fiber, tower, and broadband equipment assets acquired in the transaction which have useful lives ranging from five to twenty years. The intangible assets include customer relationships and permits (ten year useful life) and trade names and trademarks (twenty year useful life).
F-
24
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 7. BUSINESS ACQUISITIONS (As Restated) (Continued)
2020 Acquisitions (Continued)
Broadband Acquisitions
FIF Utah
On December 29, 2020, FIF Utah, our wholly-owned subsidiary, acquired substantially all of the business assets of Utah Broadband, LLC, which we refer to as “UBB”, a broadband services provider, as well as other assets used in the business operations owned by entities related to UBB. Under the terms of the Agreement, FIF Utah will assume only certain liabilities of UBB. The total purchase price of $26,603,700 was paid 80% in cash and the remaining 20% of the purchase price was paid by issuing to UBB 20% of the outstanding equity of FIF Utah. 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 UBB under the Agreement. At any time, UBB has the option, but not the obligation, to sell FIF Utah its entire ownership interest in FIF Utah. FIF Utah would be obligated to purchase the units and pay for the purchase over a three-year period if UBB elects to exercise this option. Subject to the occurrence of certain future events, FIF Utah has the option, but not the obligation, to purchase UBB’s ownership interest in FIF Utah, 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. The 20% interest outstanding owned by UBB is included within "Redeemable Noncontrolling interest" in our consolidated Balance Sheet.
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 UBB and fair value allocation benchmarks from similar completed transactions. We are currently in the process of assessing UBB’s documentation of contracts related to customer relationships, detailed structure reports, operating leases, and asset retirement obligations; and therefore the initial allocation of the purchase price is subject to refinement.
The purchase was recorded at fair value and preliminarily allocated as follows:
|
|
|
|
|
|
|
December 31, 2020
|
|
Assets Acquired
|
|
|
|
|
Property, plant and equipment
|
|
$
|
6,170,000
|
|
Customer relationships
|
|
|
7,400,000
|
|
Permits
|
|
|
330,000
|
|
Trade names and trademarks
|
|
|
1,910,000
|
|
Goodwill
|
|
|
11,030,000
|
|
Right of use assets
|
|
|
3,226,355
|
|
Other
|
|
|
201,000
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
30,267,355
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and deferred revenue
|
|
|
437,300
|
|
Lease liabilities
|
|
|
3,226,355
|
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
3,663,655
|
|
|
|
|
|
|
Total
|
|
$
|
26,603,700
|
|
FIF Utah's results of operations are recognized from December 29, 2020, the date of acquisition, through December 31, 2020. For the year ended December 31, 2020, revenues and earnings recognized from the date of acquisition in our consolidated statement of operations were $64,428 and $21,340, respectively. Acquisition costs of $352,998 were expensed in professional fees during the year. Included in our property, plant, and equipment caption are fiber, tower, and broadband equipment assets acquired in the transaction which have useful lives ranging from five to twenty years. The intangible assets include customer relationships and permits (ten year useful life) and trade names and trademarks (twenty year useful life).
F-
25
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 7. BUSINESS ACQUISITIONS (As Restated) (Continued)
2019 Acquisitions
Billboard Acquisitions
Image Outdoor Advertising, Inc.
On August 30, 2019, our subsidiary, LMSE, acquired from Image Outdoor Advertising, LLC, which we refer to as “Image”, 61 billboard structures and related assets located in West Virginia. The acquisition was completed for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The purchase price consisted of $6,915,501 in cash, net of adjustments, and 34,673 shares of our Class A common stock for a total purchase price of $7,625,604 and includes $398,750 that was held back by LMSE and will be disbursed, subject to any claims for indemnification, over an 18 month period. The final purchase price allocation related to Image includes property, plant and equipment, intangibles, and goodwill of $1,544,970, $3,152,000 and $3,058,633, respectively, as well as other net liabilities of $129,999.
Alpha Displays, Inc.
On October 1, 2019, our subsidiary, LMO, acquired certain billboard assets in Missouri from Alpha Displays, Inc. The purchase price for the acquired assets was $1,337,685 and includes $380,546 that was held back by LMO and will be disbursed, subject to any claims for indemnification, over an 18 month period. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market in the Midwestern United States.
F-
26
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 7. BUSINESS ACQUISITIONS (As Restated) (Continued)
Pro Forma Information (Restated)
The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2019. For all of the business acquisitions depreciation and amortization have been included in the calculation of the pro forma information provided below, based upon the actual or preliminary acquisition costs. Depreciation is computed on the straight-line method over the estimated remaining economic lives of the assets, ranging from two years to twenty 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 Year Ended
|
|
|
|
December 31,
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
55,925,700
|
|
|
$
|
55,824,936
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common Stockholders
|
|
$
|
2,428,915
|
|
|
$
|
1,775,851
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Income per Share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding
|
|
|
25,675,820
|
|
|
|
22,801,394
|
|
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 for 2019 to include the stock issued in connection with the acquisition of Image.
NOTE 8.
|
INTANGIBLE ASSETS
|
Intangible assets consist of the following:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Balance
|
|
|
Cost
|
|
|
Amortization
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
46,740,483
|
|
|
$
|
(20,558,751
|
)
|
|
$
|
26,181,732
|
|
|
$
|
37,743,900
|
|
|
$
|
(17,890,487
|
)
|
|
$
|
19,853,413
|
|
Permits, licenses, and lease acquisition costs
|
|
|
11,053,673
|
|
|
|
(2,412,313
|
)
|
|
|
8,641,360
|
|
|
|
10,305,521
|
|
|
|
(1,443,337
|
)
|
|
|
8,862,184
|
|
Site location
|
|
|
849,347
|
|
|
|
(193,462
|
)
|
|
|
655,885
|
|
|
|
849,347
|
|
|
|
(136,839
|
)
|
|
|
712,508
|
|
Noncompetition agreements
|
|
|
626,000
|
|
|
|
(386,934
|
)
|
|
|
239,066
|
|
|
|
626,000
|
|
|
|
(269,318
|
)
|
|
|
356,682
|
|
Technology
|
|
|
1,128,000
|
|
|
|
(212,250
|
)
|
|
|
915,750
|
|
|
|
138,000
|
|
|
|
(138,000
|
)
|
|
|
-
|
|
Trade names and trademarks
|
|
|
3,602,202
|
|
|
|
(369,175
|
)
|
|
|
3,233,027
|
|
|
|
722,200
|
|
|
|
(267,900
|
)
|
|
|
454,300
|
|
Nonsolicitation agreement
|
|
|
28,000
|
|
|
|
(28,000
|
)
|
|
|
-
|
|
|
|
28,000
|
|
|
|
(28,000
|
)
|
|
|
-
|
|
Easements
|
|
|
4,507,089
|
|
|
|
-
|
|
|
|
4,507,089
|
|
|
|
2,032,494
|
|
|
|
-
|
|
|
|
2,032,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,534,794
|
|
|
$
|
(24,160,885
|
)
|
|
$
|
44,373,909
|
|
|
$
|
52,445,462
|
|
|
$
|
(20,173,881
|
)
|
|
$
|
32,271,581
|
|
During the fourth quarter of 2019, we updated our analysis of economic lives of customer relationships. As of October 1, 2019, we extended the amortization period to 10 years to better reflect the estimated economic lives of our billboard customers. This change in accounting estimate decreased amortization expense and decreased the net loss by $2,124,125, or $0.09 per basic and diluted share, in the fourth quarter of 2019.
F-
27
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 8.
|
INTANGIBLE ASSETS (Continued)
|
The future amortization associated with the intangible assets is as follows:
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,132,966
|
|
|
$
|
3,132,966
|
|
|
$
|
3,132,966
|
|
|
$
|
3,132,966
|
|
|
$
|
3,132,966
|
|
|
$
|
10,516,902
|
|
|
$
|
26,181,732
|
|
Permits, licenses and lease acquisition costs
|
|
|
1,012,947
|
|
|
|
1,012,947
|
|
|
|
1,012,947
|
|
|
|
1,012,947
|
|
|
|
999,939
|
|
|
|
3,589,633
|
|
|
|
8,641,360
|
|
Site location
|
|
|
56,623
|
|
|
|
56,623
|
|
|
|
56,623
|
|
|
|
56,623
|
|
|
|
56,623
|
|
|
|
372,770
|
|
|
|
655,885
|
|
Noncompetition agreements
|
|
|
101,200
|
|
|
|
90,366
|
|
|
|
46,100
|
|
|
|
1,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
239,066
|
|
Technology
|
|
|
99,000
|
|
|
|
99,000
|
|
|
|
99,000
|
|
|
|
99,000
|
|
|
|
99,000
|
|
|
|
420,750
|
|
|
|
915,750
|
|
Trade names and trademarks
|
|
|
208,900
|
|
|
|
208,900
|
|
|
|
208,900
|
|
|
|
208,900
|
|
|
|
208,900
|
|
|
|
2,188,527
|
|
|
|
3,233,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,611,636
|
|
|
$
|
4,600,802
|
|
|
$
|
4,556,536
|
|
|
$
|
4,511,836
|
|
|
$
|
4,497,428
|
|
|
$
|
17,088,582
|
|
|
$
|
39,866,820
|
|
Amortization expense for the years ended December 31, 2020 and 2019 was $3,987,003 and $10,471,973, respectively.
Future Amortization
The weighted average amortization period, in months, for intangible assets is as follows:
Customer relationships
|
|
|
100
|
|
Permits, licenses, and lease acquisition costs
|
|
|
102
|
|
Site location
|
|
|
139
|
|
Noncompetition agreements
|
|
|
26
|
|
Technology
|
|
|
111
|
|
Trade names and trademarks
|
|
|
186
|
|
NOTE 9.
|
INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (As Restated)
|
Short-term Investments
Short-term investments consist of certificates of deposit, U.S. Treasury securities, and corporate bonds. Certificates of deposit, U.S. Treasury securities and corporate bonds held by UCS are classified as held to maturity, mature in less than twelve months, and are reported at amortized cost which approximates fair value. Other corporate bonds are classified as trading and reported at fair value, with any unrealized holding gains and losses during the period included in earnings. For the year ended December 31, 2020, gains on redemptions of U.S. Treasury securities held to maturity were $13,159.
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
1,035,827
|
|
|
$
|
987,599
|
|
Corporate bonds classified as trading
|
|
|
1,020,000
|
|
|
|
910,000
|
|
U.S. Treasury notes and corporate bond held to maturity
|
|
|
4,994,848
|
|
|
|
4,649,572
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,050,675
|
|
|
$
|
6,547,171
|
|
F-
28
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 9.
|
INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (As Restated) (Continued)
|
Marketable Equity Securities
During 2019, we began investing in marketable equity securities. Our marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets and classified as Level 1 within the fair value hierarchy. Our marketable equity securities are held by UCS and Boston Omaha. Marketable equity securities as of December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities, December 31, 2020
|
|
$
|
68,205,548
|
|
|
$
|
(4,169,066
|
)
|
|
$
|
64,036,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities, December 31, 2019
|
|
$
|
49,554,926
|
|
|
$
|
6,353,001
|
|
|
$
|
55,907,927
|
|
U.S. Treasury 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 and available for sale as of December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury trading securities, December 31, 2020
|
|
$
|
37,766,133
|
|
|
$
|
1,812
|
|
|
$
|
37,767,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities available for sale, December 31, 2019
|
|
$
|
75,488,863
|
|
|
$
|
(79,664
|
)
|
|
$
|
75,409,199
|
|
F-
29
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 9.
|
INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (As Restated) (Continued)
|
Long-term Investments
Long-term investments consist of certificates of deposit having maturity dates in excess of twelve months, U.S. Treasury securities, and certain equity investments. The certificates of deposit and U.S. Treasury securities have maturity dates ranging from 2021 through 2023. We have the intent and the ability to hold the certificates of deposit and U.S. Treasury securities to maturity. Certificates of deposit and U.S. Treasury securities are stated at amortized cost which approximates fair value and are held by UCS.
Long-term investments consist of the following:
|
|
December 31,
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities, held to maturity
|
|
$
|
286,015
|
|
|
$
|
1,094,983
|
|
Certificates of deposit
|
|
|
-
|
|
|
|
380,753
|
|
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
|
|
Voting common stock of CB&T Holding Corporation
|
|
|
19,058,485
|
|
|
|
19,058,485
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,448,519
|
|
|
$
|
42,638,240
|
|
Equity Investments
During May 2018, we invested $19,058,485 in voting common stock of CB&T Holding Corporation, which we refer to as “CBT,” the privately held parent company of Crescent Bank & Trust. Our investment represents 14.99% of CBT’s outstanding common stock. CBT is a closely held corporation, whose majority ownership rests with one family.
In late December 2017, we invested $10 million in non-voting common units of Dream Finders Holdings LLC, which we refer to as “DFH”, the parent company of Dream Finders Homes, LLC, a national home builder with operations in 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.
In May 2019, our subsidiary BOC DFH, LLC invested an additional $12 million in DFH through the purchase of preferred units. DFH was 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 were convertible, at our option, into non-voting common units after May 29, 2020 and the remaining preferred units were convertible, at our option, into non-voting common units after May 29, 2021. The mandatory 14% preferred return increased if the preferred units purchased were not redeemed or converted within one year of purchase. Also, we obtained additional beneficial conversion terms if the preferred units were not redeemed by May 29, 2021. During the twelve months ended December 31, 2020, DFH redeemed all $12 million of the preferred units purchased in May 2019.
During January 2018, we exchanged our convertible note receivable from Breezeway Homes, Inc., which we refer to as “Breezeway,” for 31,227 shares of preferred stock. The preferred stock is noncumulative and has a dividend rate of $.2665 per share, should dividends be declared. The preferred stock has one vote per share and is convertible into whole shares of common stock, determined according to the conversion formula contained in Breezeway’s amended and restated articles of incorporation. In addition, our investment provides us with a multi-year right to sell insurance and/or warranty products through Breezeway's software platform to its customers.
We reviewed our investments as of December 31, 2020 and 2019 and concluded that no impairment to the carrying value was required.
F-
30
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 9.
|
INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (As Restated) (Continued)
|
Investment in Unconsolidated Affiliates
We have various investments in equity method affiliates, whose businesses are in home building, real estate, real estate services, and asset management. Our interest in these affiliates ranges from 5.6% to 30%. Two of the investments in affiliates, Logic Real Estate Companies, LLC and 24th Street Holding Company, LLC, having a combined carrying amount of $687,707 as of December 31, 2020, are managed by an entity controlled by a member of our board of directors.
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. The funds will focus on opportunities within secured lending and direct investments in commercial real estate.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 9.
|
INVESTMENTS, INCLUDING INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (As Restated) (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:
|
|
December 31,
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
771,805
|
|
|
$
|
568,713
|
|
Additional investments in unconsolidated affiliates
|
|
|
16,000,000
|
|
|
|
264,834
|
|
Distributions received
|
|
|
(1,433,480
|
)
|
|
|
(541,108
|
)
|
Equity in income of unconsolidated affiliates
|
|
|
5,575,571
|
|
|
|
479,366
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
20,913,896
|
|
|
$
|
771,805
|
|
Combined summarized financial data for these affiliates is as follows:
|
|
December 31,
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,147,735,494
|
|
|
$
|
19,374,109
|
|
Gross profit
|
|
|
176,953,564
|
|
|
|
6,731,623
|
|
Income from continuing operations
|
|
|
82,992,830
|
|
|
|
1,806,620
|
|
Net income
|
|
|
86,847,498
|
|
|
|
1,859,438
|
|
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 is approximately 14% and the loan matures on May 1, 2021. Interest on unpaid principal accrues each calendar month and is due and payable monthly in arrears, on the first day of the next calendar month. Monthly interest payments began on November 1, 2020 and will continue on the first day of each month until May 1, 2021, when the note matures. Beginning February 1, 2021, and on the first day of each month thereafter, payments of $5,000,000 are due such that all outstanding principal and interest is paid by the maturity date. Other than during the existence of an event of default, all monthly payments are applied first to the payment of unpaid and accrued interest, and finally to the payment of outstanding principal due. Dream Finders Holdings, LLC has the right to prepay all or any portion of the note, but would be required to pay an amount equal to the excess of the interest which would have been due and payable if the note had not been prepaid prior to the maturity date. Any prepayments require no less than ten days notice and must identify the aggregate principal amount of the note to be prepaid on such date as well as the related interest to be paid on the prepayment date.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 10.
|
FAIR VALUE (As Restated)
|
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 December 31, 2020 and 2019, our financial instruments included cash, cash equivalents, restricted cash, receivables, marketable securities, investments, accounts payable, liability-classified warrants, and long-term debt. The carrying value of cash, cash equivalents, restricted cash, receivables, and accounts payable approximates fair value due to the short-term nature of the instruments. The fair value of long-term debt is estimated using quoted prices for similar debt (level 2 in the fair value hierarchy). At December 31, 2020 , the estimated fair value of our long-term debt was $23,839,007 which exceeds the carrying amount of $23,057,650.
Warrants
We have determined that the public warrants issued in connection with Yellowstone's initial public offering in October 2020 are subject to treatment as a liability. We utilized a binomial lattice model to value the warrants as of their issuance date, and subsequently marked them to market based upon their observable trading price with changes in fair value recognized in the statement of operations. The estimated fair value of the warrant liability at October 26, 2020 was determined using Level 2 and Level 3 inputs. The key assumptions in the option pricing model utilized relate to expected share-price volatility, expected term, risk-free interest rate and dividend yield. The expected volatility as of the IPO Closing Date was derived from observable public warrant pricing on comparable ‘blank-check’ companies that recently went public in 2020 and 2021. The risk-free interest rate is based on the interpolated U.S. Constant Maturity Treasury yield. The expected term of the warrants is assumed to be six months until the close of Yellowstone's Business Combination, and the contractual five year term subsequently. The dividend rate is based on the historical rate, which we anticipate to remain at zero.
Our re-measurement of the public warrants from Yellowstone’s IPO date to December 31, 2020 resulted in a loss of $217,582 which is included within "Remeasurement of warrant liability" within our consolidated statement of operations. The warrants were classified as Level 1 instruments as of December 31, 2020.
Marketable Equity Securities, U.S. 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 Changes
|
|
|
|
Total Carrying
|
|
|
Quoted Prices
|
|
|
|
|
|
|
in Fair Values
|
|
|
|
Amount in
|
|
|
in Active
|
|
|
|
|
|
|
Included in
|
|
|
|
Consolidated
|
|
|
Markets for
|
|
|
Realized Gains
|
|
|
Current Period
|
|
|
|
Balance Sheet
|
|
|
Identical
|
|
|
and (Losses)
|
|
|
Earnings (Loss)
|
|
|
|
Dec. 31, 2020
|
|
|
Assets
|
|
|
(As Restated)
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities, U.S. Treasury trading securities, and corporate bonds
|
|
$
|
102,824,427
|
|
|
$
|
102,824,427
|
|
|
$
|
5,701,048
|
|
|
$
|
(10,399,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-
33
NOTE 11.
|
INCOME TAXES (As Restated)
|
The components of the income tax (provision) benefit for the years ended December 31, and the tax effects of temporary differences that give rise to deferred taxes at December 31, are as follows:
|
|
December 31,
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Income tax (provision) benefit:
|
|
|
|
|
|
|
|
|
Current federal income tax expense (benefit)
|
|
$
|
(44,486
|
)
|
|
$
|
513,201
|
|
Current state income tax expense (benefit)
|
|
|
(12,894
|
)
|
|
|
161,781
|
|
Deferred federal income tax expense (benefit)
|
|
|
(1,579,511
|
)
|
|
|
1,470,099
|
|
Deferred state income tax expense (benefit)
|
|
|
2,224,254
|
|
|
|
463,432
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Benefit Before Valuation Allowance
|
|
|
587,363
|
|
|
|
2,608,513
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(587,363
|
)
|
|
|
(2,608,513
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward - all as of December 31, 2019
|
|
$
|
-
|
|
|
$
|
8,576,397
|
|
Net operating loss carryforward - federal as of December 31, 2020
|
|
|
5,278,699
|
|
|
|
-
|
|
Net operating loss carryforward - state as of December 31, 2020
|
|
|
1,833,257
|
|
|
|
-
|
|
2020 Tax credit carryforwards as of December 31, 2020
|
|
|
366,366
|
|
|
|
-
|
|
Intangibles
|
|
|
47,731
|
|
|
|
-
|
|
Lease liabilities
|
|
|
14,064,430
|
|
|
|
-
|
|
Premium adjustments and IBNR
|
|
|
776,456
|
|
|
|
-
|
|
Unrealized loss on securities
|
|
|
1,126,052
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(7,230,229
|
)
|
|
|
(6,642,866
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
16,262,762
|
|
|
$
|
1,933,531
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
(1,754,929
|
)
|
|
$
|
-
|
|
Right of use assets
|
|
|
(14,311,642
|
)
|
|
|
-
|
|
Deferred acquisition costs
|
|
|
(187,002
|
)
|
|
|
-
|
|
Investment in unconsolidated subsidiaries
|
|
|
(9,189
|
)
|
|
|
-
|
|
Unrealized loss on securities
|
|
|
-
|
|
|
|
(1,732,696
|
)
|
Other
|
|
|
-
|
|
|
|
(200,835
|
)
|
|
|
|
|
|
|
|
|
|
Total Deferred Tax Liabilities
|
|
|
(16,262,762
|
)
|
|
|
(1,933,531
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets/Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred taxes in the consolidated balance sheet are classified based upon the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability, are classified based upon the estimated period of reversal. The tax effects of temporary differences that give rise to deferred taxes are as follows:
At December 31, 2020, we have available federal tax operating loss carry forwards of approximately $25.0 million. This amount takes into consideration the reduction of $1.3 million that was the result of an IRS audit which concluded late summer of 2019. Of the $25.0 million, $10.8 million arose in years beginning before 2018. Tax operating loss carry forwards generated in years prior to 2018 may be applied against future taxable income and expire in 2035 through 2037. Tax operating loss carryovers arising in years after 2017 may be carried forward indefinitely. Tax years open to examination by federal taxing authorities include 2017 forward. We have available state tax operating loss carry forwards of approximately $30.0 million, which are available to reduce future taxable income and expire at various times and amounts.
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. Because of the historical losses before income taxes, management’s ability to rely on future expectations of taxable income is reduced and, therefore, in management’s judgment, the realization of its deferred tax assets is not more likely than not. As a result of the IPO of Dream Finders Homes, Inc. on January 20, 2021 (see further discussion within Note 18), we expect the valuation allowance recorded related to our deferred tax assets as of December 31, 2020 to be reversed in the first quarter of 2021.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 11.
|
INCOME TAXES (As Restated) (Continued)
|
The reconciliation of the income tax provision, calculated at the U.S. Corporate tax rate of 21%, to our effective income tax rate is as follows:
|
|
For the Year Ended December 31,
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Tax at statutory rate
|
|
$
|
(280,069
|
)
|
|
$
|
-
|
|
Increase (decrease):
|
|
|
-
|
|
|
|
|
|
Permanent differences
|
|
|
5,422
|
|
|
|
-
|
|
State income tax expense (benefit), net of federal income taxes
|
|
|
(12,894
|
)
|
|
|
-
|
|
Other
|
|
|
(299,822
|
)
|
|
|
-
|
|
Less: valuation allowance
|
|
|
587,363
|
|
|
|
-
|
|
Income tax benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
Uncertain Tax Positions
We believe that there are no tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within 12 months of the reporting date. None of our federal or state income tax returns are currently under examination by the Internal Revenue Service or state authorities. However, 2017 and later tax years remain subject to examination by either the Internal Revenue Service or respective states.
NOTE 12.
|
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, January 1, 2019
|
|
|
1,824,419
|
|
Additions
|
|
|
85,294
|
|
Accretion expense
|
|
|
134,992
|
|
Liabilities settled
|
|
|
-
|
|
Balance, December 31, 2019
|
|
$
|
2,044,705
|
|
Additions
|
|
|
96,864
|
|
Accretion expense
|
|
|
140,704
|
|
Liabilities settled
|
|
|
-
|
|
Balance, December 31, 2020
|
|
$
|
2,282,273
|
|
F-
35
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
The authorized common stock of the Company includes up to 38,838,884 shares of Class A common stock and 1,161,116 shares of Class B Common Stock. Each share of Class B common stock is identical to the Class A common stock in liquidation, dividend and other economic 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.
In February 2018, we filed a shelf registration statement with the SEC allowing us to sell up to $200,000,000 of our securities. This registration statement was declared effective by the SEC on February 9, 2018. We subsequently entered into a Sales Agreement with Cowen and Company, LLC, which we refer to as “Cowen,” relating to the sale of shares of our Class A common stock to be offered. In accordance with the terms of the Sales Agreement, we may offer and sell from time to time up to $50,000,000 of shares of our Class A common stock through Cowen acting as our agent. Cowen is not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Cowen and us. The compensation to Cowen for sales of Class A common stock sold pursuant to the Sales Agreement will be an amount equal to 3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. From March 2018 through August 20, 2019, we sold through Cowen an aggregate of 2,141,452 shares of our Class A common stock under this “at the market” offering, resulting in gross proceeds to us of $49,999,625. For the period from January 1 through August 20, 2019, we sold through Cowen 942,223 shares of our Class A common stock under this at-the-market offering, resulting in gross proceeds to us of $22,753,943 and net proceeds of $22,059,015 after offering costs of $694,928.
On
August 13, 2019, we entered into a
second Sales Agreement with Cowen, relating to the sale of additional shares of our Class A common stock to be offered. In accordance with the terms of the
second Sales Agreement, we
may offer and sell from time to time up to
$75,000,000 of shares of our Class A common stock through Cowen acting as our agent. Cowen is
not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between Cowen and us. The compensation to Cowen for sales of Class A common stock sold pursuant to the Sales Agreement will be an amount equal to
3% of the gross proceeds of any shares of Class A common stock sold under the Sales Agreement. From
August 21, 2019 through
December 31, 2019, we sold through Cowen
448,880 shares of our Class A common stock under the
second “at the market” offering, resulting in gross proceeds to us of
$9,450,789 and net proceeds of
$9,122,227, after offering costs of
$328,562. During the
first half of fiscal
2020, we sold under the new "at the market" offering
40,455 shares of our Class A common stock for gross proceeds of
$669,751. During the
third and
fourth quarters of fiscal
2020, we did
not sell any shares of our Class A common stock under the new "at the market" offering. The shelf registration statement subsequently expired in
February 2021.
On March 18, 2020, our Board of Directors authorized and approved a share repurchase program for us to repurchase up to $20,000,000 worth of shares of our Class A common stock, which we refer to as the “Repurchase Program.” Under the Repurchase Program, we may repurchase shares, from time to time, in solicited or unsolicited transactions in the open market, privately-negotiated transactions, or transactions pursuant to a Rule 10b5-1 plan. The Repurchase Program does not obligate us to purchase any particular number of shares and will run through the earlier of June 30, 2021, or our decision that the Repurchase Program is no longer consistent with our short-term and long-term objectives. We have not repurchased any shares during fiscal year 2020.
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 do not have current agreements, commitments or understandings for any specific material acquisitions at this 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.
Our Board of Directors also authorized us to enter into written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, which we refer to as the “Exchange Act.” Adopting a trading plan that satisfies the conditions of Rule 10b5-1 allows a company to repurchase its shares at times when it might otherwise be prevented from doing so due to self-imposed trading blackout periods or pursuant to insider trading laws. Under any Rule 10b5-1 trading plan, our third-party broker, subject to Securities and Exchange Commission regulations regarding certain price, market, volume and timing constraints, would have authority to purchase our Class A common stock in accordance with the terms of the plan. We may from time to time, enter into Rule 10b5-1 trading plans to facilitate the repurchase of our Class A common shares pursuant to our Repurchase Program.
F-
36
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 13.
|
CAPITAL STOCK (Continued)
|
At December 31, 2020, there were 104,772 outstanding warrants for our Class B common stock and 784 outstanding warrants for our Class A common stock.
A summary of warrant activity for the years ended December 31, 2020 and December 31, 2019, 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 January 1, 2019
|
|
|
105,556
|
|
|
$
|
9.95
|
|
|
|
6.5
|
|
|
$
|
1,419,728
|
|
Issued
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
105,556
|
|
|
$
|
9.95
|
|
|
|
5.5
|
|
|
$
|
1,170,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2020
|
|
|
105,556
|
|
|
$
|
9.95
|
|
|
|
4.5
|
|
|
$
|
1,868,341
|
|
F-
37
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
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.
As of December 31, 2020, Link has borrowed $18,060,000 through Term Loan 1 and $5,500,000 through Term Loan 2 under the Credit Facility. Principal amounts under each of Term Loan 1 and Term Loan 2 are payable in monthly installments according to a 15-year amortization schedule. These principal payments commenced on July 1, 2020 for Term Loan 1 and October 1, 2020 for Term Loan 2. Both term loans are payable in full on August 12, 2026. Term Loan 1 and Term Loan 2 have fixed interest rates of 4.25% and 3.375%, respectively, per annum.
The revolving line of credit loan facility has a $5,000,000 maximum availability. Interest payments are based on the 30-day LIBOR rate plus an applicable margin ranging between 2.00 and 2.50% dependent on Link’s consolidated leverage ratio. The revolving line of credit is due and payable on August 11, 2021.
Long-term debt included within our consolidated balance sheet as of December 31, 2020 consists of Term Loan 1 and Term Loan 2 borrowings of $23,057,650, of which $1,282,504 is classified as current. There were no amounts outstanding related to the revolving line of credit as of December 31, 2020.
During the term of the Credit Facility, Link is required to comply with the following financial covenants: A consolidated leverage ratio for any test period ending on the last day of any fiscal quarter of Link (a) beginning with the fiscal quarter ended December 31, 2019 of not greater than 3.50 to 1.00, (b) beginning with the fiscal quarter ended December 31, 2020 of not greater than 3.25 to 1.00, and (c) beginning with the fiscal quarter ending December 31, 2021 and thereafter, of not greater than 3.00 to 1.0; minimum consolidated fixed charge coverage ratio of not less than 1.15 to 1.00 measured quarterly, based on a rolling four quarters, with testing that commenced as of December 31, 2019 based on the December 31, 2019 audited financial statements. The Company was in compliance with these covenants as of December 31, 2020 and 2019.
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.
The aggregate minimum principal payments required on long-term debt as of December 31, 2020 were as follows: $1,282,504 in 2021, $1,236,787 in 2022, $1,288,398 in 2023, $1,339,956 in 2024, $1,398,138 in 2025 and $16,511,867 thereafter.
F-
38
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
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 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 year ended December 31, 2020 is as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Statement of Operations Classification
|
|
|
|
|
|
|
|
|
|
|
Lease cost
|
|
$
|
6,328,994
|
|
|
$
|
5,989,314
|
|
Cost of billboard revenues and general and administrative
|
Variable and short-term lease cost
|
|
|
467,797
|
|
|
|
1,019,486
|
|
Cost of billboard revenues and general and administrative
|
|
|
|
|
|
|
|
|
|
|
Total Lease Cost
|
|
$
|
6,796,791
|
|
|
$
|
7,008,800
|
|
|
Supplemental cash flow information related to operating leases was as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Cash payments for operating leases
|
|
$
|
6,211,256
|
|
|
$
|
5,776,931
|
|
New operating lease assets obtained in exchange for operating lease liabilities
|
|
$
|
881,610
|
|
|
$
|
6,551,279
|
|
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 15.
|
LEASES (Continued)
|
Operating Lease Assets and Liabilities
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Balance Sheet Classification
|
|
|
|
|
|
|
|
|
|
|
Lease assets
|
|
$
|
52,849,492
|
|
|
$
|
53,249,985
|
|
Other Assets: Right of use assets
|
|
|
|
|
|
|
|
|
|
|
Current lease liabilities
|
|
$
|
4,354,664
|
|
|
$
|
3,801,727
|
|
Current Liabilities: Lease liabilities
|
Noncurrent lease liabilities
|
|
|
47,581,933
|
|
|
|
48,199,652
|
|
Long-term Liabilities: Lease liabilities
|
|
|
|
|
|
|
|
|
|
|
Total Lease Liabilities
|
|
$
|
51,936,597
|
|
|
$
|
52,001,379
|
|
|
Maturity of Operating Lease Liabilities
|
|
December 31, 2020
|
|
|
|
|
|
|
2021
|
|
$
|
6,553,589
|
|
2022
|
|
|
6,058,577
|
|
2023
|
|
|
5,682,235
|
|
2024
|
|
|
5,197,230
|
|
2025
|
|
|
4,909,502
|
|
Thereafter
|
|
|
49,903,069
|
|
|
|
|
|
|
Total lease payments
|
|
|
78,304,202
|
|
Less imputed interest
|
|
|
(26,367,605
|
)
|
|
|
|
|
|
Present Value of Lease Liabilities
|
|
$
|
51,936,597
|
|
As of December 31, 2020 our operating leases have a weighted-average remaining lease term of 17.64 years and a weighted-average discount rate of 4.84%.
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 16.
|
INDUSTRY SEGMENTS (As Restated)
|
This summary presents our current segments, as described below.
General Indemnity Group, LLC
GIG conducts our insurance operations through its subsidiaries, Warnock, SSS, SCS and UCS. SSS clients are multi-state and UCS, SCS and Warnock clients are nationwide. Revenue consists of surety bond sales and insurance commissions. Currently, GIG’s corporate resources are used to support Warnock, SSS, SCS and UCS and to make additional business acquisitions in the insurance industry.
Link Media Holdings, LLC
LMH conducts our billboard rental operations. LMH advertisers are located in Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Virginia, West Virginia, and Wisconsin.
Fiber is Fast, LLC
FIF conducts our broadband operations. FIF provides high-speed broadband services to its customers located in Arizona and Utah.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2020 (As Restated)
|
|
GIG
|
|
|
LMH
|
|
|
FIF
|
|
|
Unallocated
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,645,962
|
|
|
$
|
28,260,964
|
|
|
$
|
3,836,537
|
|
|
$
|
-
|
|
|
$
|
45,743,463
|
|
Segment gross profit
|
|
|
6,955,759
|
|
|
|
16,988,615
|
|
|
|
3,290,431
|
|
|
|
-
|
|
|
|
27,234,805
|
|
Segment (loss) income from operations
|
|
|
(197,377
|
)
|
|
|
607,542
|
|
|
|
388,960
|
|
|
|
(5,794,032
|
)
|
|
|
(4,994,907
|
)
|
Capital expenditures
|
|
|
-
|
|
|
|
4,354,770
|
|
|
|
43,806,659
|
|
|
|
734,749
|
|
|
|
48,896,178
|
|
Depreciation and amortization
|
|
|
484,495
|
|
|
|
6,636,205
|
|
|
|
571,003
|
|
|
|
|
|
|
|
7,691,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Year Ended December 31, 2019
|
|
GIG
|
|
|
LMH
|
|
|
FIF
|
|
|
Unallocated
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
12,959,971
|
|
|
$
|
28,429,167
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
41,389,138
|
|
Segment gross profit
|
|
|
6,669,753
|
|
|
|
17,108,018
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,777,771
|
|
Segment loss from operations
|
|
|
(2,216,421
|
)
|
|
|
(5,765,105
|
)
|
|
|
-
|
|
|
|
(4,430,570
|
)
|
|
|
(12,412,096
|
)
|
Capital expenditures
|
|
|
46,868
|
|
|
|
11,728,650
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,775,518
|
|
Depreciation and amortization
|
|
|
1,179,450
|
|
|
|
12,394,691
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,574,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
As of December 31, 2020 (As Restated)
|
|
GIG
|
|
|
LMH
|
|
|
FIF
|
|
|
Unallocated
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
1,160,424
|
|
|
$
|
2,633,711
|
|
|
$
|
247,428
|
|
|
$
|
-
|
|
|
$
|
4,041,563
|
|
Goodwill
|
|
|
8,719,294
|
|
|
|
97,572,994
|
|
|
|
18,154,158
|
|
|
|
|
|
|
|
124,446,446
|
|
Total assets
|
|
|
54,536,523
|
|
|
|
219,607,150
|
|
|
|
48,496,371
|
|
|
|
318,067,382
|
|
|
|
640,707,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
As of December 31, 2019
|
|
GIG
|
|
|
LMH
|
|
|
FIF
|
|
|
Unallocated
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
1,213,823
|
|
|
$
|
2,976,720
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,190,543
|
|
Goodwill
|
|
|
8,719,294
|
|
|
|
97,553,207
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106,272,501
|
|
Total assets
|
|
|
45,956,410
|
|
|
|
224,258,311
|
|
|
|
-
|
|
|
|
166,693,489
|
|
|
|
436,908,210
|
|
F-
41
BOSTON OMAHA CORPORATION
and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020 and 2019
NOTE 17.
|
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 years ended December 31:
|
|
2020
|
|
|
2019
|
|
Losses and LAE at beginning of year
|
|
$
|
1,203,493
|
|
|
$
|
360,514
|
|
|
|
|
|
|
|
|
|
|
Provision for losses and LAE claims arising in:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
2,221,844
|
|
|
|
1,590,858
|
|
Prior year
|
|
|
694,002
|
|
|
|
123,044
|
|
Total incurred
|
|
|
2,915,846
|
|
|
|
1,713,902
|
|
Losses and LAE payments for claims arising in:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
1,182,375
|
|
|
|
856,778
|
|
Prior years
|
|
|
444,630
|
|
|
|
14,145
|
|
Total payments
|
|
|
1,627,005
|
|
|
|
870,923
|
|
|
|
|
|
|
|
|
|
|
Losses and LAE at end of year
|
|
$
|
2,492,334
|
|
|
$
|
1,203,493
|
|
For the year ended December 31, 2020, $444,630 was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There has been a $168,846 favorable prior year development during the year ended December 31, 2020. Reserves remaining as of December 31, 2020 for prior years are $694,002 as a result of re-estimation of unpaid losses and loss adjustment expenses. For the year ended December 31, 2019, $14,145 was paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. There was a $223,137 favorable prior year development during the year ended December 31, 2019.
Reserves remaining as of December 31, 2019 for prior years were $123,044 as a result of re-estimation of unpaid losses and loss adjustment expenses. In both periods, 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 of $100,620 and $120,000 are included within Loss and Loss Adjustment Reserves as of December 31, 2020 and 2019, respectively.
NOTE 18.
|
SPECIAL PURPOSE ACQUISITION COMPANY (As Restated)
|
On September 25, 2020, we filed a Registration Statement on Form S-1 with the Securities and Exchange Commission for a proposed initial public offering of units of a special purpose acquisition company (“SPAC”) named Yellowstone Acquisition Company, which we refer to as “Yellowstone”. Our subsidiary, BOC Yellowstone LLC, which we refer to as “BOC Yellowstone”, served as the sponsor of Yellowstone. The purpose of the offering is 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.
Prior to the filing of Yellowstone's Registration Statement on Form S-1, BOC Yellowstone purchased 5,750,000 shares of Yellowstone's Class B common stock, par value $0.0001 per share, for an aggregate price of $25,000. Between October 9, 2020, and December 31, 2020, BOC Yellowstone surrendered 2,350,276 shares of Class B common stock to Yellowstone for no consideration, resulting in an aggregate of 3,399,724 shares of Yellowstone's Class B common stock outstanding as of December 31, 2020. The shares of Class B common stock will automatically convert into shares of Yellowstone's Class A common stock on a one-for-one basis at the time of Yellowstone's initial business combination and are subject to certain transfer restrictions.
On October 26, 2020, Yellowstone consummated its initial public offering (the “IPO") of 12,500,000 units (the “Units”). Each Unit consisted of one share of Class A common stock of Yellowstone, par value $0.0001 per share, and one-half of one redeemable warrant of Yellowstone, each whole warrant entitling the holder thereof to purchase one whole share of Yellowstone's Class A Common Stock at an exercise price of $11.50 per share. The Units were sold at a price of $10.00 per unit, generating gross proceeds to Yellowstone of $125,000,000, and trade 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.
Also on October 26, 2020, simultaneously with the closing of the IPO, BOC Yellowstone purchased 7,500,000 warrants at a purchase price of $1.00 per warrant, for a total purchase price of $7,500,000. In the event that Yellowstone does not consummate a business combination within 15 months of its initial public offering, our shares of Yellowstone's Class B common stock and warrants will be used to redeem the shares of Class A common stock sold to the public.
On November 16, 2020, BOC Yellowstone transferred to BOC Yellowstone II LLC, which we refer to as “BOC Yellowstone II”, 206,250 shares of Class B common stock for no consideration. All other shares of Class B common stock are owned by BOC Yellowstone. BOC Yellowstone sold to the lead investor in Yellowstone’s IPO a membership interest in BOC Yellowstone II for a purchase price of $309,375. Upon the completion of any business combination, BOC Yellowstone has agreed to transfer the 206,250 shares of Class B common stock to this investor. Any Class B common stock ultimately distributed to the investor is subject to all restrictions imposed on BOC Yellowstone, including but not limited to, waiver of redemption rights in connection with completion of any initial business combination and rights to liquidating distributions from Yellowstone's trust account if Yellowstone fails to complete an initial business combination. Any shares held by such investor will be subject to the anti-dilution provisions for the Class B common stock and the impact thereof. BOC Yellowstone is the sole managing member of BOC Yellowstone II.
On December 1, 2020, the underwriters' over-allotment option was exercised resulting in the purchase of an additional 1,098,898 Units. In connection with the underwriter's exercise of the over-allotment option on December 1, 2020, BOC Yellowstone purchased warrants at a price of $1.00 per whole warrant to purchase an additional 219,779 shares of Class A common stock at a price of $11.50 per share.
All of the 13,598,898 shares of Class A Common Stock sold as part of the Units in Yellowstone's public offering contain a redemption feature which allows for the redemption of such public shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with a business combination and in connection with certain amendments to Yellowstone’s second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480.
The Company classifies all shares of Yellowstone's Class A Common Stock as redeemable noncontrolling interest within temporary equity and recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable noncontrolling interest to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are effected through charges against accumulated deficit. Earnings and losses are shared pro rata between Yellowstone's Class A common stock and Class B common stock.
Yellowstone’s assets that are measured at fair value on a recurring basis at December 31, 2020 are comprised of $138,716,226 of marketable U.S. treasury securities held in the Trust Account, all of which are classified as Level 1 instruments within the fair value hierarchy.
NOTE 19.
|
CUSTODIAL RISK (As Restated)
|
As of December 31, 2020, we had approximately $50,982,625 in excess of federally insured limits on deposit with financial institutions.
NOTE 20.
|
SUBSEQUENT EVENTS
|
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 will no longer be 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 March 26, 2021, our total investment in DFH, based on its closing price on such date, was valued at over $111 million, before applying any required fair value adjustments or discounts related to the lack of marketability associated with our lock-up period. Any decrease in the value of DFH common stock before we can liquidate our holdings in DFH could materially adversely impact our operating results and our stockholders’ equity.
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 amount, including interest which would have been due had the note not been prepaid, was $20,567,776.
On January 26, 2021, our subsidiary, LMH, acquired certain billboard assets and easements in Kansas from Thomas Outdoors, LLC. The purchase price for the acquired assets was $6,102,508.
Subsequent to December 31, 2020, Boston Omaha Corporation sold approximately $34,600,000 of its marketable equity securities.
On April 1, 2021, our subsidiary, GIG, acquired 100% of the membership units of an insurance brokerage company for a purchase price $2,225,000. The membership units were acquired for the purpose of expanding our presence in the surety and fidelity insurance business in the United States.
On April 6, 2021, we closed on the previously announced underwritten public offering of our Class A common stock, par value $0.001 per share (“Class A common stock”), at a price to the public of $25.00 per share, for a total of 2,645,000 shares, of which 2,345,000 shares were sold by us, including 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 results in total gross proceeds to us of approximately $58.6 million, before deducting the underwriting discount and offering expenses. We did not receive any of the proceeds from the sale of shares by the selling stockholder.
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