Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and as set forth under “Item 1A. Risk Factors.” Please also refer to the section under the heading “Cautionary Note Concerning Forward-Looking Statements.”

Overview

We are currently engaged in outdoor billboard advertising and surety insurance and related brokerage businesses and commenced a broadband business in March 2020. In addition, we hold minority investments in commercial real estate management and brokerage services, a bank focused on servicing the automotive loan market, and a homebuilding company with operations located primarily in the Southeast United States.

Billboards: In June 2015, we commenced our billboard business operations through acquisitions by Link, our wholly-owned subsidiary, 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. These transactions include our acquisition on July 31, 2018 of Tammy Lynn for approximately $16 million, our acquisition on August 22, 2018 of substantially all of the assets of Key for approximately $38 million, and our acquisition on August 31, 2018 of Waitt for approximately $84 million. We believe that the acquisitions of Waitt and Key, with over 1,600 and 700 billboard structures, respectively, make us a leading outdoor billboard advertising company in the markets we serve in the Midwest. As of March 12, 2020, we operate approximately 3,000 billboards with approximately 5,600 advertising faces. One of our principal business objectives is to continue to acquire additional billboard assets through acquisitions of existing billboard businesses in the United States when they can be made at what we believe to be attractive prices relative to other opportunities generally available to us.

Surety Insurance: 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 UCS a surety insurance company, which at that time was licensed to issue surety bonds in only nine states. UCS now has licenses to operate in all 50 states and the District of Columbia. In addition, over the last three years, we have also acquired additional surety insurance brokerage businesses located in various regions of the United States.

Broadband Services. In March 2020, we commenced our broadband services business with the acquisition of substantially all of the assets of FibAire. We provide these services to over 7,000 customers located in Arizona and hope to continue to expand this business in Arizona and other locales.

Investments:

● 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 Company, LLC, both directly and indirectly through our ownership in Logic.

● In December 2017, we invested $10 million in common stock of Dream Finders Holdings LLC, the parent company of Dream Finders Homes, LLC, a national home builder with operations in Colorado, Florida, Georgia, Maryland, 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. DFH is required to pay us a mandatory preferred return of at least 14% per annum on such preferred units and 25% of our preferred units are convertible, at our option, into non-voting common units until May 30, 2020 and the remaining preferred units are convertible, at our option, into non-voting common units after May 29, 2021. The mandatory 14% preferred return increases if the preferred units purchased are not redeemed or converted within one year of purchase. Also, we obtain additional beneficial conversion terms if the preferred units are not redeemed by May 29, 2021. On January 13, 2020, DFH redeemed $6 million of the preferred units.

● 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.

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

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

How We Generate Our Revenues and Evaluate Our Business

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

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

Results of Operations

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

The following is a comparison of our results of operations for the year ended December 31, 2019, which we refer to as “fiscal 2019,” compared to the year ended December 31, 2018 which we refer to as “fiscal 2018.” Our results for fiscal 2019 include the operating results of certain billboard operations which were acquired during the third quarter of fiscal 2018. For fiscal 2018, operating results include the acquisitions of certain billboard operations from the date each acquisition was completed during the third quarter of fiscal 2018 through December 31, 2018. Therefore, comparisons of our results for fiscal 2019 to fiscal 2018 may not be meaningful. Our results of operations do not include results from our broadband operations, which we acquired in March 2020.

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

	For the Years Ended December 31,
	2019					2018					2019 vs 2018
	Amount		As a % of Total Revenues			Amount		As a % of Total Revenues			$ Variance
Revenues:
Billboard rentals, net	$	28,429,167		68.7	%	$	14,065,132		70.3	%	$	14,364,035
Premiums earned		10,944,313		26.4	%		3,184,312		15.9	%		7,760,001
Insurance commissions		1,567,331		3.8	%		2,606,031		13.0	%		(1,038,700	)
Investment and other income		448,327		1.1	%		165,918		0.8	%		282,409
Total Revenues	$	41,389,138		100.0	%	$	20,021,393		100.0	%	$	21,367,745

We realized total revenues of $41,389,138 during fiscal 2019, an increase of 106.7% over revenues of $20,021,393 during fiscal 2018. Total revenues were largely driven by increases in our net billboard rentals, which reflects the billboard acquisitions completed in the third quarter of fiscal 2018. The increase in revenues was also due to increased written premiums reflecting our approval to issue surety bonds in all 50 states and the District of Columbia, growth within our rental guarantee bond program, and improved marketing efforts. We recognize revenues for written premium over the life of the surety bond and, as a result, increased sales activities are not fully reflected in the quarter in which the surety bond is issued.

● Net billboard rentals during fiscal 2019 increased by $14,364,035, or 102.1%, when compared to fiscal 2018. The increase was mainly driven by the Waitt, Key and Tammy Lynn acquisitions in July and August of 2018 as well as continued improvement in rental and occupancy rates on our existing billboards.

● Premiums earned from UCS during fiscal 2019 increased by $7,760,001, or 243.7%, when compared to fiscal 2018. The increase in premiums earned is primarily due to an increase in gross written premium now that UCS is licensed in all 50 states and the District of Columbia, growth within our rental guarantee bond program, and our brokerage businesses being able to place more surety bonds through UCS.

● Revenue from insurance commissions generated by our surety brokerage operations during fiscal 2019 decreased by $1,038,700, or 39.9%, when compared to fiscal 2018. The decrease in commission revenue is primarily due to our agents placing more surety bond business through UCS rather than through other carriers now that UCS is licensed in all 50 states and the District of Columbia.

● Investment and other income during fiscal 2019 increased $282,409, or 170.2%, when compared to fiscal 2018.

Expenses. For fiscal 2019 and fiscal 2018, our expenses, in dollars, and as a percentage of total revenues, were as follows:

	For the Years Ended December 31,
	2019					2018					2019 vs 2018
	Amount		As a % of Total Revenues			Amount		As a % of Total Revenues			$ Variance
Costs and Expenses:
Cost of billboard revenues	$	11,321,149		27.4	%	$	5,639,030		28.1	%	$	5,682,119
Cost of insurance revenues		6,290,218		15.2	%		1,949,621		9.7	%		4,340,597
Employee costs		11,945,895		28.9	%		8,601,950		43.0	%		3,343,945
Professional fees		3,664,370		8.9	%		3,460,690		17.3	%		203,680
General and administrative		6,346,698		15.3	%		4,222,015		21.1	%		2,124,683
Amortization		10,471,973		25.3	%		6,036,657		30.1	%		4,435,316
Depreciation		3,102,168		7.5	%		2,039,408		10.2	%		1,062,760
Loss on disposition of assets		223,890		0.5	%		150,649		0.8	%		73,241
Bad debt expense		299,881		0.7	%		126,275		0.6	%		173,606
Accretion		134,992		0.3	%		52,639		0.3	%		82,353
Total Costs and Expenses	$	53,801,234		130.0	%	$	32,278,934		161.2	%	$	21,522,300

During fiscal 2019, we had total costs and expenses of $53,801,234, as compared to total costs and expenses of $32,278,934 in fiscal 2018. Total costs and expenses as a percentage of revenues decreased to 130.0% in fiscal 2019 from 161.2% in fiscal 2018. This improvement reflects our increase in total revenues, primarily attributable to the Waitt, Key and Tammy Lynn transactions in the third quarter of fiscal 2018 and increased revenues from our insurance operations. Many of our most significant increases in costs arise from acquisitions completed in the third quarter of fiscal 2018, including amortization of intangibles and cost of billboard revenues associated with these acquisitions, as well as costs to meet future anticipated demand in our operations. In fiscal 2019, cost of billboard revenues, employee costs, professional fees, depreciation, amortization, and general and administrative expenses decreased as a percentage of total revenues as compared to fiscal 2018. Cost of insurance revenues increased as a percentage of total revenues in fiscal 2019 as compared to fiscal 2018 due primarily to increased gross written premium by UCS. Loss on disposition of assets, accretion, and bad debt expense, primarily associated with our billboard business, remained relatively constant as a percentage of revenues.

● Cost of billboard revenues in fiscal 2019 increased $5,682,119, or 100.8%, when compared to fiscal 2018. The increase in expenses is primarily due to the Waitt, Key and Tammy Lynn transactions, which significantly increased our number of billboards and accordingly increased the costs associated with operating this increased inventory, including increased land expense and commissions paid reflecting the greater sales volume. As a percentage of billboard revenues, cost of billboard revenues decreased to 39.8% in fiscal 2019 from 40.1% in fiscal 2018.

● Cost of insurance revenues includes commissions paid, premium taxes, fees and assessments, and losses and loss adjustment expense. Due to increased gross written premium at UCS, the cost of insurance revenues increased from $1,949,621 in fiscal 2018 to $6,290,218 in fiscal 2019, an increase of 222.6%.

● Total employee costs in fiscal 2019 increased $3,343,945, or 38.9%, when compared to fiscal 2018. However, employee costs as a percentage of revenues decreased to 28.9% in fiscal 2019 from 43.0% in fiscal 2018. This decrease in employee costs as a percentage of revenues was primarily due to significantly higher revenues, partially offset by increased staffing levels in our billboard and insurance operations. Most of the increase in staffing costs reflects increased headcount as a result of acquisitions and increased staffing to meet future anticipated demand for our products and services.

● Professional fees in fiscal 2019 were $3,664,370, or 8.9% of total revenues, as compared to $3,460,690, or 17.3% of total revenues in fiscal 2018. Professional fees increased in fiscal 2019, primarily due to professional fees associated with our fiscal 2018 and 2019 audit processes and internal controls attestation by our outside independent auditor.

● Non-cash expenses in fiscal 2019 included $10,471,973 in amortization expense, $3,102,168 in depreciation expense, and $134,992 in accretion expense. Amortization expense increased by 73.5% and depreciation expense increased by 52.1% from fiscal 2018 to fiscal 2019. These increases are primarily associated with the Waitt, Key and Tammy Lynn transactions in the third quarter of fiscal 2018 as well as the finalization of the Key and Waitt purchase price allocations in the third quarter of fiscal 2019. In addition, as of October 1, 2019, we updated our analysis of economic lives of customer relationships and extended the amortization period from 3 years to 10 years to better reflect the estimated economic lives of our billboard customers. Lastly, accretion expense in connection with asset retirement obligations for certain billboard assets increased to $134,992 in fiscal 2019 primarily due to the Waitt, Key and Tammy Lynn transactions.

● General and administrative expenses increased from $4,222,015 in fiscal 2018 to $6,346,698 in fiscal 2019, an increase of 50.3%. The increase was due primarily to increased staffing and system implementations from recent acquisitions as well as increased staffing to meet future anticipated demand for our products and services. As a percentage of total revenues, general and administrative expenses decreased to 15.3% in fiscal 2019 from 21.1% in fiscal 2018.

Net Loss from Operations. Net loss from operations in fiscal 2019 was $12,412,096, or 30.0% or total revenues, as compared to a net loss from operations of $12,257,541, or 61.2% of total revenues, in fiscal 2018. The increase in net loss from operations in dollars was primarily due to increased amortization expense associated with the billboard acquisitions completed in the third quarter of fiscal 2018 as well as increased cost of billboard revenues and cost of insurance revenues. However, net loss from operations decreased as a percentage of total revenues in fiscal 2019 primarily due to the decrease in employee costs, general and administrative expenses, amortization expense, and professional fees as a percentage of total revenues as revenues from the Waitt, Key and Tammy Lynn businesses acquired in the third quarter of 2018 and from our UCS surety bond business grew at a faster rate than these expenses. Our net loss from operations of $12,412,096 in fiscal 2019 included $13,709,133 from non-cash amortization, depreciation and accretion expenses.

Other Income (Expense). In fiscal 2019, we had net other income of $10,930,831. Net other income included $6,273,337 from unrealized gains on large publicly traded equity securities mainly held by Boston Omaha, $710,169 in dividend income from equity securities held by Boston Omaha, $479,366 in equity in income from unconsolidated affiliates, $572,181 in realized gains mainly from the sale of marketable equity securities held by UCS, and interest income of $3,198,527, primarily derived from our investments in short-term treasury securities as well as our DFH preferred units, which was partially offset by interest expense of $302,749 incurred under Link's term loan which commenced in August 2019. During fiscal 2018, we had net other income of $3,098,710, which included $500,017 in equity in income of unconsolidated affiliates, $662,666 in realized gains on disposition of investments, and interest income of $1,953,226, which was partially offset by unrealized losses on securities of $15,395 and interest expense of $1,804.

Net Loss Attributable to Common Stockholders. We had a net loss attributable to common stockholders in the amount of $1,486,923 in fiscal 2019, or a loss per share of $0.07, based on 22,778,405 weighted average shares outstanding. This is compared to a net loss attributable to common stockholders in the amount of $9,113,937 in fiscal 2018, or a loss per share of $0.46, based on 19,933,467 weighted average shares outstanding.

The following tables report results for the two segments in which we operate, billboards and insurance, for fiscal 2019 and fiscal 2018:

Results of Billboard Operations

	For the Years Ended December 31,
	2019						2018
	Amount			As a % of Segment Operating Revenues			Amount			As a % of Segment Operating Revenues
Operating Revenues
Billboard rentals, net	$	28,429,167			100.0	%	$	14,065,132			100.0	%
Cost of Revenues
Ground rents		6,238,827			22.0	%		2,999,971			21.3	%
Utilities		1,166,644			4.1	%		604,484			4.3	%
Commissions paid		2,708,485			9.5	%		1,296,429			9.2	%
Other costs of revenues		1,207,193			4.2	%		738,146			5.3	%
Total cost of revenues		11,321,149			39.8	%		5,639,030			40.1	%
Gross margin		17,108,018			60.2	%		8,426,102			59.9	%
Other Operating Expenses
Employee costs		6,027,205			21.2	%		3,299,893			23.5	%
Professional fees		700,626			2.5	%		585,145			4.2	%
General and administrative		3,094,573			10.9	%		1,482,971			10.4	%
Amortization		9,313,916			32.8	%		4,782,144			34.0	%
Depreciation		3,080,775			10.8	%		2,022,787			14.4	%
Accretion		134,992			0.5	%		52,639			0.4	%
Loss on disposition of assets		223,890			0.8	%		150,649			1.1	%
Bad debt expense		297,146			1.0	%		125,351			0.9	%
Total expenses		22,873,123			80.5	%		12,501,579			88.9	%
Segment Loss from Operations		(5,765,105	)		(20.3	%)		(4,075,477	)		(29.0	%)
Interest income (expense)		(251,657	)		(0.9	%)		130			0.0	%
Net Loss Attributable to Common Stockholders	$	(6,016,762	)		(21.2	%)	$	(4,075,347	)		(29.0	%)

Comparison of Fiscal 2019 to Fiscal 2018. In fiscal 2019, there was a 102.1% increase in net billboard revenues from fiscal 2018, reflecting the acquisition of billboards from Waitt, Key and Tammy Lynn in the third quarter of fiscal 2018 and improving rental and occupancy rates of our billboards. Other than ground rents, commissions paid, and general and administrative expenses, all other significant costs decreased as a percentage of segment operating revenues. Net loss from operations increased in total dollars but decreased as a percentage of segment revenues. The key factors affecting our billboard operations results during fiscal 2019 were as follows:

● Amortization expense in fiscal 2019 increased $4,531,772, or 94.8%, when compared to fiscal 2018. The increase mainly reflects the Waitt, Key and Tammy Lynn transactions completed in the third quarter of fiscal 2018 as well as the finalization of the Key and Waitt purchase price allocations in the third quarter of fiscal 2019. In addition, as of October 1, 2019, we updated our analysis of economic lives of customer relationships and extended the amortization period from 3 years to 10 years to better reflect the estimated economic lives of our billboard customers.

● Depreciation expense in fiscal 2019 increased $1,057,988, or 52.3%, when compared to fiscal 2018. The increase was primarily due to the acquisitions of billboard assets under the Waitt, Key and Tammy Lynn transactions in the third quarter of fiscal 2018.

● Ground rent expense in fiscal 2019 increased $3,238,856, or 108.0%, when compared to fiscal 2018. The increase was primarily due to the acquisition of billboards from Waitt, Key and Tammy Lynn as well as the new lease accounting standard (ASC 842), which went into effect on January 1, 2019, where lease expense is now recognized on a straight-line basis over the lease term. Ground rents increased as a percentage of total segment operating revenues from 21.3% in fiscal 2018 to 22.0% in fiscal 2019.

● Increases in commissions paid are associated with an increase in net billboard revenues driven mainly by the Waitt, Key and Tammy Lynn transactions as well as improved rental and occupancy rates. As a percentage of total segment operating revenues, commissions paid increased from 9.2% in fiscal 2018 to 9.5% in fiscal 2019.

● Other increases in operating expenses, including increased employee costs and general and administrative expenses, mainly reflect the Waitt, Key and Tammy Lynn transactions in the third quarter of fiscal 2018.

Results of Insurance Operations

	For the Years Ended December 31,
	2019						2018
	Amount			As a % of Segment Operating Revenues			Amount			As a % of Segment Operating Revenues
Operating Revenues
Premiums earned	$	10,944,313			84.4	%	$	3,184,312			53.5	%
Insurance commissions		1,567,331			12.1	%		2,606,031			43.7	%
Investment and other income		448,327			3.5	%		165,918			2.8	%
Total operating revenues		12,959,971			100.0	%		5,956,261			100.0	%
Cost of Revenues
Commissions paid		4,114,251			31.7	%		1,442,374			24.2	%
Premium taxes, fees, and assessments		386,617			3.0	%		132,740			2.2	%
Losses and loss adjustment expense		1,789,350			13.8	%		374,507			6.3	%
Total cost of revenues		6,290,218			48.5	%		1,949,621			32.7	%
Gross margin		6,669,753			51.5	%		4,006,640			67.3	%
Other Operating Expenses
Employee costs		5,094,581			39.3	%		4,808,522			80.7	%
Professional fees		250,992			1.9	%		513,266			8.6	%
General and administrative		2,358,416			18.2	%		2,113,067			35.5	%
Amortization		1,158,057			9.0	%		1,254,514			21.1	%
Depreciation		21,393			0.2	%		16,620			0.3	%
Bad debt expense		2,735			0.0	%		923			0.0	%
Total expenses		8,886,174			68.6	%		8,706,912			146.2	%
Segment Loss from Operations		(2,216,421	)		(17.1	%)		(4,700,272	)		(78.9	%)
Interest income (expense)		151			0.0	%		(1,469	)		(0.0	%)
Unrealized gain on securities		1,193,042			9.2	%		-			0.0	%
Gain on sale of investments		557,279			4.3	%		24,301			0.4	%
Noncontrolling interest in subsidiary (income) loss		(5,658	)		(0.0	%)		44,894			0.7	%
Net Loss Attributable to Common Stockholders	$	(471,607	)		(3.6	%)	$	(4,632,546	)		(77.8	%)

Comparison of Fiscal 2019 to Fiscal 2018. In fiscal 2019, total operating revenues increased by 117.6% when compared to fiscal 2018, primarily due to a 243.7% increase in premiums earned at UCS. In addition, during fiscal 2019, expenses grew at a slower rate than revenues, resulting in a reduced loss from insurance operations. The key factors affecting our insurance operations results during fiscal 2019 were as follows:

● Increased premiums earned from our UCS subsidiary in fiscal 2019, reflecting our ability to now sell surety insurance in all 50 states and the District of Columbia as well as growth within our rental guarantee bond program. During fiscal 2018, we were just beginning operations in a number of states and did not receive approval from California until August 2018.

● Our brokerage operations realized a decrease in insurance commissions from other insurance carriers as more premium was written internally through UCS.

● The favorable impact of these additional revenues to UCS were partially offset by increased commissions paid, primarily due to increased revenues within UCS from third-party agents and the sale of certain rental guarantee bonds which generally provide a higher commission structure.

● Our losses and loss adjustment expense as a percentage of insurance revenues increased in connection with our loss reserve estimates based on increased revenue within UCS as well as entering new geographic markets.

● We continue our efforts to improve operating results by expanding marketing efforts and the technology infrastructure that is utilized by UCS and our brokerage operations.

● Employee costs and general and administrative expenses decreased as a percentage of insurance revenue to 39.3% and 18.2%, respectively, during fiscal 2019. This is compared to 80.7% and 35.5% of insurance revenues, respectively, during fiscal 2018.

● During fiscal 2019, our loss from insurance operations was reduced by unrealized gains on our investments in publicly held securities and gains on the sale of publicly held equity investments. We expect to continue to invest a portion of our excess capital in accordance with insurance regulatory limitations in both publicly traded equity securities and bonds. While these investments have produced realized and unrealized gains in fiscal 2019, these investments are subject to the risk of loss in value depending upon market conditions and factors outside of our control.

Cash Flows

Cash Flows for Fiscal 2019 compared to Fiscal 2018. The table below summarizes our cash flows, in dollars, for fiscal 2019 and fiscal 2018:

	2019			2018
Net cash provided by operating activities	$	9,613,549		$	38,325
Net cash used in investing activities		(60,626,598	)		(164,756,183	)
Net cash provided by financing activities		49,241,242			175,631,127
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(1,771,807	)	$	10,913,269

Net Cash Provided by Operating Activities. Net cash provided by operating activities in fiscal 2019 was $9,613,548 as compared with $38,325 in fiscal 2018. The increase was primarily attributable to the acquisitions of Waitt, Key and Tammy Lynn as well as continued growth in our operations and unearned premiums from our insurance operations.

Net Cash Used in Investing Activities. Net cash used in investing activities was $60,626,598 in fiscal 2019 as compared with $164,756,183 during fiscal 2018. This decrease in net cash used in investing activities is primarily the result of decreased business acquisition activity during 2019 when compared to our 2018 acquisitions of Waitt, Key and Tammy Lynn, which totaled $134,798,950 from a cash standpoint. Partially offsetting the decrease in acquisition activity is our current year investment in preferred units of DFH as well as increased net cash outflows related to our purchases and proceeds from the sale of investments.

Net Cash Provided by Financing Activities. Net cash provided by financing activities was $49,241,242 in fiscal 2019 and consists of gross proceeds of $32,204,732 raised through our “at the market” offerings, offset by offering costs of $1,023,490, as well as gross proceeds of $18,060,000 received related to our term loan with First National Bank of Omaha. This is a decrease from fiscal 2018 in which we had $175,631,127 provided by financing activities consisting of gross proceeds of approximately $150,000,000 raised through the sale of our Class A common stock in our 2018 private placement and gross proceeds of $27,245,682 raised through our “at the market” offering during fiscal 2018, offset by offering costs of $1,614,555 collectively.

Liquidity and Capital Resources

Currently, we own billboards in Alabama, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Virginia, West Virginia and Wisconsin, surety insurance brokerage firms we acquired in 2016 and 2017, a surety insurance company we acquired in December 2016, a broadband service provider whose assets we acquired in March 2020 and minority investments in several real estate management entities, a builder of residential homes, and a bank holding entity whose primary source of revenue is in subprime automobile lending. At December 31, 2019, we had approximately $16 million in unrestricted cash and approximately $75 million in U.S. Treasury securities available for sale. Our strategy is to continue to acquire other billboard locations and insurance businesses as well as acquire other businesses which we believe have the potential to generate positive cash flows and when made at what we believe to be attractive prices relative to other opportunities generally available to us. We currently expect to finance any future acquisitions and investments with cash, debt and seller or third-party financing. Similar to our previous issuance in connection with the acquisitions of Tammy Lynn and Image, in the future, we may satisfy all or a portion of the purchase price for an acquisition with our equity securities. In addition, we have made investments in several companies and expect to continue to make investments in the securities of both publicly traded and privately held companies.

There can be no assurance that we will consummate any subsequent acquisitions. 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. Our failure to successfully identify and complete future acquisitions of assets or businesses could reduce future potential earnings, available cash and slow our anticipated growth.

In February 2018, we announced the entry into a stock purchase agreement relating to the issuance and sale of up to $150,000,000 of our unregistered Class A common stock, which we refer to as the “2018 private placement.” 3,300,000 shares were issued in the initial closing, which occurred on March 6, 2018, resulting in gross proceeds to us of $76,890,000. The remaining 3,137,768 shares were issued during the third quarter of fiscal 2018 in a subsequent closing on May 15, 2018, resulting in gross proceeds to us of approximately $73,110,000. Under the 2018 private placement, all shares were sold at $23.30, a slight premium to the $23.29 closing price of the Class A common stock on the NASDAQ Capital Market, as reported by NASDAQ on the date of the Class A Common Stock Purchase Agreement.

Since March 2018, we have utilized our “at the market” offering that is part of our shelf Registration Statement on Form S-3 (File No. 333-222853) that was filed with the Securities and Exchange Commission, which we refer to as the “SEC,” and declared effective in February 2018, which authorizes us to sell up to $200,000,000 through the sales of securities to the public. The original “at the market” offering was pursuant to a Sales Agreement entered into on March 2, 2018 with Cowen and Company, LLC, which we refer to as “Cowen,” and related to the sale of shares of our Class A common stock. In accordance with the terms of that Sales Agreement, we had the option to 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 was not required to sell any specific amount of securities, but acted 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 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, of which 942,223 shares were sold during fiscal 2019 for gross proceeds of $22,753,943. We subsequently entered into a new Sales Agreement with Cowen which allows us to sell up to an additional $75,000,000 of our Class A common stock under the same compensation arrangement to Cowen. This new "at the market" offering provides us with the flexibility to seek to raise additional capital in amounts we deem appropriate and at price levels approved by us, with lower costs than a traditional underwritten public offering. We have no specific plans for the use of any proceeds from this new “at the market” offering of our Class A common stock. During fiscal 2019, we sold 448,880 shares of our Class A common stock under this new "at the market" offering for gross proceeds of $9,450,789. As of the date of this report, we have not sold any shares of our Class A common stock during 2020.

On August 12, 2019, Link, our wholly owned subsidiary which owns and operates our billboard businesses, entered into a Credit Agreement, which we refer to as the “Credit Agreement,” with First National Bank of Omaha, which we refer to as the “Lender,” under which Link may borrow up to $40,000,000, which we refer to as the "Credit Facility." The Credit Agreement provides for an initial term loan, which we refer to as “Term Loan 1,” of up to $24,900,000, an incremental term loan, which we refer to as "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 Boston Omaha Corporation or any of our non-billboard businesses. Link has initially borrowed $18,060,000 under the Credit Facility. Term Loan 1 has a fixed interest rate of 4.25% per annum with interest only payments due through July 1, 2020. Term Loan 2 has a loan availability in an amount not to exceed three times 2019 reported EBITDA reduced by the loan principal under Term Loan 1 and must be drawn before June 30, 2020. If utilized, Term Loan 2 will have a fixed rate of interest determined using the seven-year Treasury rate plus 195 basis points but in any event an interest rate no less than 4.20% per annum. Principal amounts under each of Term Loan 1 and Term Loan 2 are payable in monthly installments according to either a 15-year or 25-year amortization schedule. For Term Loan 1, these payments are due commencing on the earlier of July 1, 2020 or the first day of the first calendar month following any draw down under Term Loan 2. For Term Loan 2, these principal payments are due commencing on the last day of the month following the closing of Term Loan 2. Both term loans are payable in full on August 12, 2026. Commencing July 1, 2020, principal payments for these term loans are amortized over a 15-year period. Link retains the option to amortize loan principal payments on both term loans on a 25-year amortization schedule provided Link meets a 2:00 to 1:00 consolidated leverage ratio test as described in the Credit Agreement and meets certain other customary terms and conditions set forth in the Credit Agreement. During the first three years of the term loans, Link may prepay up to 10% of the loan principal in each year without paying any prepayment penalty. Otherwise, there is a prepayment penalty ranging between 2.0% and 0.5%. After three years, there is no prepayment penalty. In addition to the term loans, the Credit Agreement allows Link to borrow up to $5,000,000 through August 12, 2021 under a revolving line of credit, subject to the limitation that Link's total borrowings under both term loans and the line of credit may not exceed $40,000,000 in the aggregate. Interest payments on the revolving line of credit 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 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 foregoing summary of the Credit Agreement and the transactions contemplated thereby does not purport to be a complete description and is qualified in its entirety by reference to the terms and conditions of the Credit Agreement and Security Agreement, copies of which are attached as Exhibit 10.1 and Exhibit 10.2, respectively to our Form 8-K as filed with the SEC on August 13, 2019 and a First Amendment to Credit Agreement, a copy of which is attached as Exhibit 10.1 to our Form 8-K as filed with the SEC on October 29, 2019.

We believe that our existing cash and short-term investments, generated by the proceeds from the 2018 private placement, the proceeds from the “at the market” offering to date, additional funds that we may receive in the current “at the market” offering, funds received and in the future available through the credit agreement Link entered into on August 12, 2019, and any funds that we may receive from cash flows from operations will be sufficient to meet working capital requirements, and anticipated capital expenditures for the next 12 months. At December 31, 2019, we had approximately $91 million available in unrestricted cash and U.S. Treasury securities. If future additional significant acquisition opportunities become available in excess of our currently available cash and U.S. Treasury securities, we may need to seek additional capital through long term debt borrowings, the sale of our securities, and/or other financing options and we may not be able to obtain such debt or equity financing on terms favorable to us or at all.

In the future, we may use a number of different sources to finance our acquisitions and operations, including current cash on hand, potential future cash flows from operations, seller financing, debt financings including but not limited to long-term debt and line of credit facilities, including additional credit facilities which may or may not be secured by our assets or those of our operating subsidiaries, 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. In addition to our current credit facility, any other future debt that we incur may be recourse or non-recourse and may be secured or unsecured. Link's existing credit facility imposes restrictions on Link that could increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our billboard and insurance industries. Specifically, these restrictions place limits on Link and its subsidiaries' ability to, among other things, incur additional indebtedness, make additional acquisitions and investments, pay dividends, repurchase stock, create liens, enter into transactions with affiliates, merge or consolidate or transfer or sell our billboard assets. Our credit facility requires us to meet a fixed charge coverage ratio and other financial covenants. Our ability to comply with these loan covenants may be affected by factors beyond our control and a breach of any loan covenants would likely result in an event of default under the credit facility, which would permit the lender to declare all amounts incurred thereunder to be immediately due and payable and to terminate their commitment to make future extensions of credit. 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. Any future credit facilities which we or any of our subsidiaries may enter into would likely impose similar restrictions and risks. We may use the proceeds of any future borrowings to acquire assets or for general corporate purposes. In determining when to use leverage, we will assess 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 and 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 markets for debt and equity securities, fluctuations in the market price of our Class A 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.

Off-Balance Sheet Arrangements

Except for our normal operating leases, we do not have any off-balance sheet financing arrangements, transactions or special purpose entities.

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements and related notes to the consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

In the notes accompanying the consolidated financial statements, we describe the significant accounting policies used in the preparation of our consolidated financial statements. We believe that the following represent the most significant estimates and management judgments used in preparing the consolidated financial statements.

Revenue Recognition

Billboard Rentals. We generate revenue from outdoor advertising through the leasing of advertising space on billboards. The terms of the operating leases generally range from less than one month to three years and are generally billed monthly. Revenue for advertising space rental is recognized on a straight-line basis over the term of the contract. Advertising revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for operations. Payments received in advance of being earned are recorded as deferred revenue.

Insurance Premiums and Commissions. Premiums written are recognized as revenues based on a pro-rata daily calculation over the respective terms of the policies in-force. Unearned premiums represent the portion of premiums written applicable to the unexpired term of the policies in-force. The cost of reinsurance ceded is initially written as prepaid reinsurance premiums and is amortized over the reinsurance contract period in proportion to the amount of insurance protection provided. Premiums ceded are netted against premiums written.

We generate revenue from commissions on surety bond sales. 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.

Right of Use Assets and Lease Liabilities

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.

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 our 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.

Insurance. Accounts receivable consists of premiums and anticipated salvage. All of the receivables have payment terms of less than twelve months.

Deferred Policy Acquisition Costs

Insurance 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 accumulated depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from two years to fifteen years as follows:

	Years

Structures		15
Digital displays and electrical		3 to 10
Static and tri-vision displays		7 to 15
Vehicles, equipment, and furniture		2 to 5

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 periodically for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be fully recoverable. The period over which property and equipment is 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.

Purchased Intangibles and Other Long-Lived Assets

We amortize intangible assets with finite lives over their estimated useful lives, which range between two years and 50 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 3
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.

We have acquired goodwill related to our various business acquisitions. Goodwill represents future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill, by reporting unit, is reviewed annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. For our annual review, we employ a third party valuation expert. Factors considered in the annual evaluation include deterioration in economic conditions (both macro and geographic), limitations on accessing capital, and market value of our company. Industry and market conditions such as changes in competition, the general state of the industry, regulatory and political developments, and changes in market multiples are additional components of the valuation. Changes in key personnel, strategy, and customer retention are also reviewed. 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.

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.

Investments

Investments include certificates of deposit, marketable equity securities, investments in corporate bonds, and U.S. Treasury securities. U.S Treasury securities and corporate bonds 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 securities to maturity. U.S treasury securities and corporate bonds held by non-insurance entities are classified as available for sale and are accounted for at fair value. Because we have elected the fair value option for these securities, unrealized holding gains and losses during the period are included in earnings. Interest income is recognized at the coupon rate. Marketable equity securities are publicly traded stocks measured at fair value using quoted prices for identical assets in active markets. 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.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update, which we refer to as “ASU,” No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which requires entities to carry all investments in equity securities at fair value and recognize any changes in fair value in net income. Under the standard, equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient are eligible for the measurement alternative. For our equity investments of less than 5% in private companies, we have elected to adopt the measurement alternative, defined as cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. We adopted the provisions of ASU No. 2016-01 on January 1, 2018.

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. For 2018, we held long-term certificates of deposit as collateral.

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 in the results of operations in the period in which the estimates are updated.

Tax Contingencies

We are subject to income taxes and other state and local taxes. Our tax returns, like those of most companies, are subject to periodic audit by federal, state and local tax authorities. Future audits may include questions regarding our tax filing positions, including the timing and amount of deductions and the reporting of various taxable transactions. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures associated with our various tax filing positions, we may record a liability for such exposures. A number of years may elapse before a particular matter, for which we have established a liability, is audited and fully resolved or clarified. We adjust our liability for these tax exposures in the period in which a tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position, or when more information becomes available.

Quantitative and Qualitative Disclosures about Market Risk

At December 31, 2019, we held no significant derivative instruments that materially increased our exposure to market risks for interest rates, foreign currency rates, commodity prices or other market price risks. Our operations are currently conducted entirely within the U.S.; therefore, we had no significant exposure to foreign currency exchange rate risk.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or other standard setting bodies, which are adopted by us as of the specified effective date. Unless otherwise discussed, the Company’s management believes the impact of recently issued standards not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption. See Note 2 to these consolidated financial statements for a detailed discussion of recently issued accounting pronouncements.

BOC - Boston Omaha Corporation