Boston Omaha Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited consolidated financial statements. The company, formerly REO Plus, Inc., shifted its focus toward outdoor advertising after new management took control in February 2015.
Business context and key financial metrics
During the period, the company entered the billboard advertising business through three acquisitions in Alabama, Florida, and Georgia. It also held a 40% interest in Ananda Investments, a Houston real estate company.
| Metric | Q3 2015 | Nine months 2015 | Comparable 2014 |
|---|---|---|---|
| Revenue | $349,161 | $358,861 | Q3: $11,583; nine months: $23,549 |
| Operating loss | ($450,000) | ($688,899) | Q3: ($3,309); nine months: ($30,429) |
| Net loss | ($449,291) | ($696,079) | Q3: ($15,053); nine months: ($66,589) |
| Basic and diluted loss per share | ($0.18) | ($0.67) | Q3: ($0.06); nine months: ($0.25) |
| Operating margin | Approximately (129%) | Approximately (192%) | Not stated |
Billboard rentals generated $349,161 in the nine-month period; consulting fees contributed $9,700, down from $23,549 a year earlier. The company said it no longer provides real estate consulting services. Costs included $547,867 of professional fees and $211,304 of depreciation and amortization for the nine months. Management attributed the increased costs largely to acquisitions, potential acquisitions, financing, and reorganization work. No gross margin is presented.
Cash flow and liquidity: Cash was $14.25 million at September 30, 2015, versus $1,461 at year-end 2014. Operating activities used $543,042; investing activities used $9.92 million, principally for acquisitions; and financing activities provided $24.72 million, including $24.5 million from stock issuance. Current assets were $14.54 million and current liabilities were $432,040.
Debt and obligations: Company balance-sheet notes payable totaled $203,494 at quarter-end: $100,000 to stockholders and $103,494 to a related party, in addition to accrued interest. The related-party note is secured by the company’s 40% Ananda interest and matures in February 2016. The company also guaranteed Ananda’s bank mortgage, with a $368,141 balance, although the former controlling stockholder separately guaranteed the full debt to the company. Acquired billboard leases carry disclosed future minimum rents of $2.79 million.
Material changes versus the prior comparable period
- Revenue rose substantially as billboard operations began, but expenses and losses also increased. Comparisons are limited because the acquisitions closed in June, July, and August 2015 and were not part of the prior-year business.
- The company raised $24.5 million in equity proceeds during 2015. It also converted or extinguished $505,154 of notes and accrued interest for Class A shares and warrants.
- Total assets increased to $24.28 million from $48,724 at year-end 2014, reflecting cash raised and acquired billboard assets, goodwill, and intangibles. Stockholders’ equity moved from a $467,379 deficit to $23.85 million.
- Ananda, the company’s unconsolidated affiliate, reported nine-month net income of $31,412 versus a $38,205 loss in 2014; Boston Omaha recognized $12,565 as its equity in affiliate income.
Outlook, commentary, risks, and unusual items
- Management expects to continue pursuing billboard acquisitions and other business opportunities. It believes billboard assets may provide durable, growing cash flow, but gave no numerical guidance or assurance that acquisitions will be profitable.
- Management said July’s $14.5 million stock offering funded a limited number of acquisitions. The company had no binding commitments for additional financing and said future acquisitions may require new capital; availability and terms are uncertain.
- The filing states that the accumulated deficit of $1.22 million and lack of earnings from operations raise substantial doubt about the company’s ability to continue as a going concern. Management cited the equity raise and anticipated billboard profitability as part of its plan, while cautioning that success is not assured.
- Acquisition purchase-price allocations for Fair Outdoor and I-85 Advertising were provisional pending independent appraisals. Bell Media’s allocation included $2.75 million of goodwill; total reported goodwill at quarter-end was $3.74 million. No impairment was recorded for the nine months.
- After quarter-end, the company bought an 8.33% interest in a Florida residential real estate venture for $377,732. Management also said it formed General Indemnity Group, LLC, intending to use it for potential insurance operations.
- Class A shares carry ten votes per share, compared with one vote for common shares, and holders of Class A shares elect two directors. A rights offering at $10 per share was anticipated for late 2015 or early 2016; the filing provides no assurance of its completion.
- Management reported that accounting duties for Boston Omaha had not yet been fully segregated, although billboard-subsidiary accounting had been outsourced. Management otherwise considered disclosure controls effective, subject to this exception.
Important facts for investors to verify
- Whether billboard operations can grow revenue and achieve profitability after acquisition and integration costs.
- Final appraised purchase-price allocations, goodwill and intangible-asset values, and any subsequent impairment assessments.
- Cash requirements, future acquisition plans, and whether additional financing or the proposed rights offering will be needed and available on acceptable terms.
- The terms and repayment or potential settlement of the February 2016 related-party note, and the company’s exposure under the Ananda mortgage guarantee.
- Progress in completing corporate accounting segregation and the status of the going-concern risks identified in the filing.
- The voting, dilution, and governance effects of Class A shares, outstanding warrants, and any subsequent capital issuance.