Boston Omaha Corporation — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter report; the filing does not provide clear Q4-only financial results. The 2015 business changed substantially during the year, with billboard operations beginning in June under new management, so comparison with 2014 is not like-for-like.
Business context
The company shifted from real-estate-related consulting and investment activity toward outdoor billboard advertising, acquiring assets in Alabama, Florida and Georgia. It formed General Indemnity Group (GIG) to pursue specialty property and casualty insurance, but wrote no insurance business or generated insurance revenue in 2015. It also made minority investments in real estate ventures. Management’s stated objective is to retain and allocate capital toward acquisitions and durable earnings streams.
Financial results and position
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $722,912, including $713,212 of billboard rentals and $9,700 of related-party consulting fees | $43,874, all related-party consulting fees |
| Costs and expenses | $1,829,790 | $66,715 |
| Operating loss | $1,106,878 | $22,841 |
| Net loss | $1,047,423 | $66,778 |
| Basic and diluted loss per share | $0.71 | $0.25 |
| Cash from operating activities | $(813,356) | $(49,851) |
| Cash from investing activities | $(10,719,702) | $0 |
| Cash from financing activities | $24,720,663 | $23,500 |
Billboard rentals began only after the 2015 acquisitions. Professional fees were $737,451, primarily reflecting acquisition, audit, insurance-startup and reporting costs; depreciation and amortization totaled $457,803. The resulting net loss was largely associated with ramp-up and acquisition-related costs. The filing does not provide a comparable, established-business margin trend.
At December 31, 2015, cash was $13,189,066, total assets were $23,785,496, total liabilities were $289,981, and stockholders’ equity was $23,495,515. Current assets were $13,536,300 and current liabilities $289,981. Year-end liabilities included $100,000 of notes payable to stockholders. The company reported no debt at February 29, 2016, after subsequent note conversions, and cash of $29,296,891 at that date. These later figures are not year-end balances.
Investing cash outflows included billboard acquisitions and equipment, as well as $670,232 invested in unconsolidated affiliates. Year-end goodwill was $4,389,664 and net intangible assets were $958,265. Future minimum billboard ground rents under existing leases totaled $2,730,146.
Material changes and outlook
- In 2015, the company raised $24.5 million from its principal shareholders through common and Class A stock sales and converted $505,154 of notes and accrued interest into Class A stock and warrants.
- In January 2016, the company began a Rule 506 offering seeking up to $50 million at $10.15 per share. It reported approximately $25.1 million raised by March 24, 2016; amounts elsewhere in the filing vary slightly. A proposed rights offering was expected after the financing.
- After year-end, the company acquired Wisconsin billboard assets, including 422 faces and 50 directional signs, for approximately $6.95 million, and acquired a Florida digital display for $287,320. It reported more than 500 billboard faces and 50 directional signs following these acquisitions.
- Management expects to pursue further billboard acquisitions and develop insurance operations. The filing gives no quantified earnings, revenue, or cash-flow guidance. Management said 2015 financing and subsequent funding alleviated the prior-year going-concern doubt, but additional capital may be needed and no binding commitment for future financing was disclosed.
- GIG received approval in February 2016 to form a District of Columbia protected-cell captive insurer. Insurance operations remain early-stage and subject to licensing, capital, underwriting and claims-reserving risks.
- The company reported no pending legal proceedings and no material off-balance-sheet arrangements. It does not expect to pay dividends for the foreseeable future.
Risks, controls and governance
- Management concluded that internal control over financial reporting was ineffective at year-end and identified a material weakness, citing no independent audit committee, insufficient financial-statement review staffing, inadequate segregation of bookkeeping duties and too few independent directors. The auditor did not attest to internal controls. The independent auditor gave an unqualified opinion on the financial statements.
- Cash concentration is a risk: approximately $13 million at year-end exceeded FDIC insurance limits at one institution; the company later disclosed approximately $29.3 million of cash at one institution as of February 29, 2016.
- Billboard operations face regulatory, permitting, site-lease, advertising-demand and competitive risks. Digital signs may require more capital and face additional restrictions.
- Acquisition execution, integration, goodwill and intangible-asset valuation, and the ability to generate positive cash flow from acquired businesses are significant uncertainties. The company had limited operating and acquisition history under its new strategy.
- Related-party and governance considerations are material. The principal shareholders hold all Class A shares, with ten votes per share, and together control an overwhelming majority of voting power. No director was considered independent; a director is associated with businesses in which the company invested. The company disclosed related-party investments and significant limits on minority shareholder influence.
- The common stock had no established public trading market, and resale restrictions may limit liquidity. Equity issuance may dilute shareholders; the ongoing financing was expected to increase shares outstanding.
Important facts for investors to verify
- Reconcile the amount raised in the 2016 financing, shares issued, cash remaining after the 2016 acquisitions, and resulting dilution and voting control.
- Review acquired billboard operations’ post-acquisition revenue, operating cash flow, site-lease terms, and purchase-price allocations, including the substantial goodwill recorded.
- Track remediation of the disclosed material weakness, including finance staffing, independent board membership and segregation of duties.
- Assess the related-party relationships involving Logic, TAG, company management and directors, including the terms of ongoing management services.
- Confirm the status, required capital and launch plans for GIG’s insurance business, and evaluate underwriting, licensing and claims-reserve risks before attributing value to projected operations.