BOSTON OMAHA Corp (BOC) FY 2021 MD&A

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 Summary Risk Factors and “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, surety insurance and related brokerage businesses, and broadband services businesses. In addition, we hold minority investments in commercial real estate management and brokerage services, a bank focused on servicing the automotive loan market, and Sky Harbour Group Inc., a developer and operator of airplane hangars for general aviation.

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 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, including our acquisition of approximately 900 billboards in 2021. We believe that we are a leading outdoor billboard advertising company in the markets we serve in the Midwest. As of December 31, 2021, we operate approximately 3,900 billboards with approximately 7,400 advertising faces. One of our principal business objectives is to continue to acquire additional billboard assets through acquisitions of existing billboard businesses in the United States when they can be made at what we believe to be attractive prices relative to other opportunities generally available to us.

Surety Insurance. 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 four 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 and provide these services to over 8,000 customers located in Arizona. In December 2020, we acquired substantially all of the business assets of UBB and provide broadband services to over 10,000 subscribers throughout Utah. In September 2021, we announced the launch of Fiber Fast Homes, LLC (“FFH”), which partners with builders, developers and build-to-rent communities to build fiber-to-the-home infrastructure and provide fiber internet service to residents. We hope to continue to expand in Arizona, Utah, and other locales.

Investments:

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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, Utah and 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 SHG 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 Fiber to the Home 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, from the sale of surety insurance and related brokerage activities and by providing high-speed broadband services. 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. In our broadband business, 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.

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. In our broadband business, direct costs of services includes network operations and data costs, programming costs, cell site rent and utilities, and other broadband level expenses.

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Results of Operations

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following is a comparison of our results of operations for the year ended December 31, 2021, which we refer to as “fiscal 2021,” compared to the year ended December 31, 2020 which we refer to as “fiscal 2020.”

Revenues.  For fiscal 2021 and fiscal 2020, our revenues in dollars and as a percentage of total revenues were as follows:

We realized total revenues of $56,971,811 during fiscal 2021, an increase of 24.5% over revenues of $45,743,463 during fiscal 2020. The increase in total revenues was largely driven by our acquisition of FibAire in March 2020, our acquisition of UBB in December 2020, and growth within our billboard business after being negatively impacted from the COVID-19 pandemic during fiscal 2020. These increases in revenue were partially offset by lower revenue within our UCS insurance subsidiary, mainly due to the suspension of its rental guarantee bond program. Due to the disruption in this market, in the second quarter of 2020, we suspended issuing new rental guarantee bonds, which could reduce future revenues at UCS. 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.

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Expenses.  For fiscal 2021 and fiscal 2020, our expenses in dollars and as a percentage of total revenues were as follows:

During fiscal 2021, we had total costs and expenses of $80,738,680, as compared to total costs and expenses of $50,738,370 in fiscal 2020. Total costs and expenses as a percentage of revenues increased from 110.9% in fiscal 2020 to 141.7% in fiscal 2021, mainly due to bonuses totaling $7,500,000 to each of our co-Chief Executive Officers under our Management Incentive Bonus Plan and other bonuses totaling $650,000 payable to our Chief Financial Officer and a higher level of professional fees and general and administrative expenses associated with Yellowstone entering into a business combination agreement with SHG as well as Boston Omaha’s $55 million Sky Series B Preferred Units investment. Excluding the above bonus payments and costs associated with Yellowstone, our total costs and expenses as a percentage of revenues would have been 108.7% in fiscal 2021. In fiscal 2021, cost of billboard revenues and cost of insurance revenues decreased as a percentage of total revenues as compared to fiscal 2020. Cost of broadband revenues, employee costs, depreciation and general and administrative expenses increased as a percentage of total revenues mainly due to the FibAire acquisition in March 2020, the UBB acquisition in December 2020, and the consolidation of Yellowstone. Amortization, loss on disposition of assets and accretion, primarily associated with our billboard and broadband services businesses, remained relatively constant as a percentage of total revenues.

Net Loss from Operations. Net loss from operations in fiscal 2021 was $23,766,869, or 41.7% of total revenues, as compared to a net loss from operations of $4,994,907, or 10.9% of total revenues, in fiscal 2020. The increase in net loss from operations in dollars was primarily due to the management bonus payments, costs associated with Yellowstone entering into a business combination agreement with SHG as well as Boston Omaha’s $55 million Sky Series B Preferred Units investment, decreased revenue within our insurance operations, an increase in other corporate related expenses which were partially offset by improved operations within our billboard business and the addition of our broadband services operations. Our net loss from operations included $10,262,994 from non-cash amortization, depreciation and accretion expenses in fiscal 2021, as compared to $7,832,407 in fiscal 2020.

Other Income (Expense). In fiscal 2021, we had net other income of $96,940,657. Net other income included $93,163,697 in other investment income related to public equity securities mainly held by Boston Omaha, $2,854,407 related to the remeasurement of Yellowstone’s public warrants, $878,921 in equity in income of unconsolidated affiliates, interest income of $676,618 primarily derived from our short-term loan to DFH, and $323,064 in dividend income mainly from public equity securities held by Boston Omaha. These items were partially offset by interest expense of $956,050 mainly incurred under Link’s term loans. During fiscal 2020, we had net other income of $2,566,655, which included $4,685,725 in other investment losses related to public equity securities mainly held by Boston Omaha, $5,575,571 in equity in income of unconsolidated affiliates, $1,661,680 in interest income, $1,074,539 in dividend income, $217,582 of expense related to the remeasurement of the warrant liability, and interest expense of $841,828 mainly incurred under Link’s term loans.

As a result of a change in GAAP effective in 2018, we are required to include the unrealized changes in market prices of investments in public equity securities in our reported earnings. While we intend to hold our current securities for the longer term, we may in the future choose to sell them for a variety of reasons resulting in realized losses or gains.

Net Income (Loss) Attributable to Common Stockholders. We had net income attributable to common stockholders in the amount of $52,748,177 in fiscal 2021, or income per share of $1.82, based on 29,046,514 diluted weighted average shares outstanding, primarily as a result of realized and unrealized gains related to our ownership in DFH. This is compared to a net loss attributable to common stockholders of $49,089 in fiscal 2020, or a loss per share of $0.00, based on 25,675,820 weighted average shares outstanding.

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The following tables report results for the three segments in which we operate, billboards, insurance and broadband, for fiscal 2021 and fiscal 2020:

Results of Billboard Operations

Comparison of Fiscal 2021 to Fiscal 2020. In fiscal 2021, net billboard revenues increased by 11.5% from fiscal 2020, reflecting an improvement in rental and occupancy rates across a number of our markets after being negatively impacted by the COVID-19 pandemic in 2020. In addition, the acquisition of billboards from Thomas in January 2021 accounted for approximately 3.4% of our billboard revenues in fiscal 2021. The key factors affecting our billboard operations results during fiscal 2021 were as follows:



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Results of Insurance Operations



Comparison of Fiscal 2021 to Fiscal 2020. In fiscal 2021, total operating revenues declined by 25.0% when compared to fiscal 2020, mainly due to the suspension of UCS's rental guarantee bond program. The key factors affecting our insurance operations results during fiscal 2021 were as follows:



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Results of Broadband Operations

Comparison of Fiscal 2021 to Fiscal 2020. In March 2020, we commenced our broadband services business with the acquisition of substantially all of the assets of FibAire. In December 2020, we acquired substantially all of the business assets of UBB. Therefore, comparisons of our broadband results for fiscal 2021 to fiscal 2020 may not be meaningful.

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Cash Flows

Cash Flows for Fiscal 2021 compared to Fiscal 2020. The table below summarizes our cash flows in dollars for fiscal 2021 and fiscal 2020:

Net Cash Provided by Operating Activities. Net cash provided by operating activities was $7,768,237 during fiscal 2021 as compared to net cash provided by operating activities of $5,174,446 during fiscal 2020. The increase in net cash provided by operating activities was primarily due to the addition of our broadband services business, increased cash flow generation within our billboard business, increased distributions from unconsolidated affiliates, and favorable working capital fluctuations, which was partially offset by the decline in operating results within our insurance business as well as costs associated with Yellowstone.

Net Cash Used in Investing Activities. Net cash used in investing activities was $45,670,808 during fiscal 2021 as compared with net cash used in investing activities of $169,399,964 during fiscal 2020. During fiscal 2021, net cash used in investing activities mainly consisted of our $55,000,000 Sky Series B Preferred Units investment, acquisitions within our billboard and insurance businesses totaling $41,334,711 net of cash acquired, and $21,005,626 in capital expenditures. These investments were partially offset by $52,095,404 related to the sale of marketable securities and maturing U.S. Treasury trading securities mainly held at Boston Omaha as well as the receipt of $20,000,000 of principal payments on our note receivable from DFH.

Net Cash Provided by Financing Activities. Net cash provided by financing activities was $64,644,655 during fiscal 2021 as compared to net cash provided by financing activities of $202,805,802 during fiscal 2020. During fiscal 2021, net cash provided by financing activities mainly consisted of $62,850,213 in gross proceeds raised through a public offering of Class A common stock and our "at the market" program, as well as $8,125,402 in proceeds from long-term debt as Link's term loan was increased to $30,000,000, offset primarily by offering costs of $3,663,291.

Liquidity and Capital Resources

Currently, we own billboards in Alabama, Arkansas, Florida, Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Nevada, Oklahoma, Virginia, West Virginia and Wisconsin, surety insurance brokerage firms we acquired in 2016, 2017 and 2021, a surety insurance company we acquired in December 2016, broadband services providers whose assets we acquired in March 2020 and December 2020 and minority investments in several real estate management entities and a bank holding entity whose primary source of revenue is in subprime automobile lending. At December 31, 2021, we had approximately $73 million in unrestricted cash and approximately $88 million in U.S. Treasury trading securities. We subsequently invested an additional $45 million in Sky in January 2022 in connection with the consummation of the Sky business combination. Our strategy is to continue to acquire other billboard locations, insurance businesses, and broadband service providers as well as acquire other businesses and open new 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. 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. Although we have and continue to enter into non-binding letters of intent to acquire businesses on a regular basis, we do not have current agreements, commitments or understandings for any specific material acquisitions which are probable to be consummated at this time.

To date, we have raised funds through the sale of our Common Stock in public offerings, sales of our Common Stock in “at the market” programs, term loan financing through our Link subsidiary, proceeds from the sale of publicly traded securities held by us, cash flow from operations, and, prior to 2019, through private placements of our Common Stock.

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2020 and 2021 Underwritten Public Offerings

On May 28, 2020, we entered into an underwriting agreement, which we refer to as the “2020 Underwriting Agreement,” with Wells Fargo Securities, LLC, which we refer to as “WFS,” 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 “2021 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.”  On June 2, 2020, we completed the public offering selling a total of 3,680,000 shares, including both the 2020 firm shares and all of the 2021 option shares, resulting in total gross proceeds to us of $58.9 million. 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, which we refer to as the “2018 Shelf Registration Statement.”

On March 31, 2021, we entered into an underwriting agreement, which we refer to as the “2021 Underwriting Agreement,” with WFS for a public offering of 2,300,000 shares, which we refer to as the “2021 firm shares,” of our Class A common stock, of which 2,000,000 shares were sold by Boston Omaha and 300,000 shares were sold by a selling stockholder, at a public offering price of $25.00 per share. Under the terms of the 2021 Underwriting Agreement, we granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 345,000 shares of Class A common stock at the public offering price less underwriting discounts and commissions, which we refer to as the “2021 option shares.” On April 6, 2021, we announced the completion of the public offering consisting of 2,345,000 shares, including both the 2021 firm shares and all of the 2021 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 $58.6 million. 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 universal shelf registration statement on Form S-3ASR (File No. 333-254870) that was declared effective on March 30, 2021, which we refer to as the “2021 Shelf Registration Statement.” The 2021 Shelf Registration Statement will expire upon the filing of this Annual Report as we will no longer qualify as a well-known seasoned issuer as the market float of our Class A common stock held by non-affiliates will be less than $700 million during the 60-day period prior to the filing of this Annual Report.  As a result, we expect to file a new shelf registration statement for the sale of up to $300 million of our securities immediately following the filing of this Annual Report.  Any new shelf registration statement will not be immediately effective and will be subject to review by the SEC.

We may, from time to time, in one or more offerings, offer and sell an indeterminate amount of any combination of Class A common stock or preferred stock, various series of debt securities and/or warrants. The shelf registration statement may also be used by one or more selling security holders to be identified in the future of our securities. We or any selling security holders may offer these securities from time to time in amounts, at prices and on terms determined at the time of offering. We may sell these securities to or through one or more underwriters, dealers or agents or directly to purchasers on a delayed or continuous basis. Unless otherwise set forth in an applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities that we offer for general corporate purposes, including, but not limited to, financing our existing businesses and operations, and expanding our businesses and operations through additional hires, strategic alliances and acquisitions.

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At The Market Offering Programs

Starting in March 2018, we utilized our at the market offering that was part of our 2018 Shelf Registration Statement. This 2018 Shelf Registration Statement, which authorized us to sell up to $200 million through the sales of securities to the public, expired in February 2021 and was superseded by the 2021 Shelf Registration Statement. We sold a total of 2,630,787 shares of Class A common stock and raised gross proceeds of $60.1 million under the 2018 Shelf Registration Statement.

On September 29, 2021, we entered into an at the market equity offering program (the “ATM Program”) pursuant to a Sales Agreement (the “Sales Agreement”) by and between us and WFS. This ATM Program is consistent with our historical practice of having available to management the option to issue stock from time to time in order to continue to fund the growth of its fiber to the home rural broadband business, acquire additional billboards, and make other such investments in assets as needed to seek to grow intrinsic value per share. Our general preference is always to have options available to us from a capital allocation perspective which includes, but is not limited to, having a regularly filed ATM program as well as an authorized share repurchase program.

Pursuant to the terms of the Sales Agreement, we could sell, from time to time, shares (collectively, the “Placement Shares”) of our Class A common stock, with an aggregate sales price of up to $100 million through WFS, in transactions that are deemed to be at the market offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”). As of the date of this Report, we have sold 122,246 shares of our Class A common stock resulting in gross proceeds of approximately $4.2 million.

We intend to use the net proceeds from the sale of Placement Shares, after deducting WFS’ commissions and our offering expenses, for general corporate purposes, which may include financing existing businesses and operations, and expanding businesses and operations through additional acquisitions, minority investments and additional hires. To the extent that we raise additional funds by issuing equity or other securities, our shareholders may experience additional dilution. In the event we are required to obtain additional funds, there is no guarantee that we will be able to raise or obtain the additional funds or that the funds will be available on favorable terms to us. Upon the expiration of the 2021 Shelf Registration Statement and upon the effectiveness of the subsequent shelf registration statement which we expect to file with the SEC shortly after the filing of this Annual Report, we expect to enter into a similar sales agreement with WFS for sales of our securities under that new shelf registration statement.

For sales of Placement Shares through WFS, we paid WFS a commission at a mutually agreed rate of 3% of the gross sales price per Placement Share. The Sales Agreement contains customary representations and warranties of the parties and indemnification and contribution provisions under which we and WFS have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

The foregoing description of the Sales Agreement is not complete and is qualified in its entirety by reference to the full text of the Sales Agreement, a copy of which is filed as Exhibit 1.1 to the Current Report on Form 8-K as filed with the SEC on September 29, 2021.

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Link Credit Agreement

On August 12, 2019, Link 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 provided for an initial term loan (“Term Loan 1”), an incremental term loan (“Term Loan 2”) and a revolving line of credit. Link initially borrowed approximately $18 million under Term Loan 1 and $5.5 million under Term Loan 2. On December 6, 2021, Link entered into a Fourth Amendment to Credit Agreement (the "Fourth Amendment"), which modified the Credit Agreement by increasing the borrowing limit to $30,000,000 and combining the outstanding balances under Term Loan 1 and Term Loan 2 as well as any incremental borrowings into a term loan ("Term Loan"). The Term Loan is 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. The loan is not guaranteed by Boston Omaha or any of our non-billboard businesses. Long-term debt included within our consolidated balance sheet as of December 31, 2021 consists of Link’s Term Loan borrowings of $30,000,000, of which $1,490,427 is classified as current. There were no amounts outstanding related to the revolving line of credit as of December 31, 2021.

Principal amounts under the Term Loan are payable in monthly installments according to a 15-year amortization schedule with principal payments commencing on January 1, 2022. The Term Loan is payable in full on December 6, 2028. During the first three years of the Term Loan, 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 3.0% and 0.5%. After three years, there is no prepayment penalty. The Term Loan has a fixed interest rate of 4.00% per annum. The revolving line of credit loan facility has a $5,000,000 maximum availability. Interest payments are based on the U.S. Prime Rate minus an applicable margin ranging between 0.65% and 1.15% dependent on Link’s consolidated leverage ratio. The revolving line of credit is due and payable on August 12, 2023.

Under the Term Loan, 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, 2021 of not greater than 3.50 to 1.00, (b) beginning with the fiscal quarter ending December 31, 2022 of not greater than 3.25 to 1.00 and (c) beginning with the fiscal quarter ended December 31, 2023 and thereafter of not greater than 3.00 to 1.00. A minimum consolidated fixed charge coverage ratio of not less than 1.15 to 1.00 measured quarterly, based on rolling four quarters. The Company was in compliance with these covenants as of December 31, 2021.

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 loan. Upon the occurrence of certain insolvency and bankruptcy events of default the loan 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, 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, a Second 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 June 30, 2020, a Third Amendment to Credit Agreement (the “Third Amendment”) with the Lender as filed as Exhibit 10.1 on Form 8-K as filed with the SEC on August 24, 2021, and a Fourth Amendment to Credit Agreement with the Lender as filed as Exhibit 10.1 on Form 8-K as filed with the SEC on December 9, 2021.

Loan to Dream Finders Homes

On October 2, 2020, we provided a 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 this term loan is approximately 14% and matured on May 1, 2021. This loan was repaid with interest in early 2021.

Investments in Yellowstone Acquisition Company and Sky Harbour LLC

In 2020, we sponsored and invested approximately $7.8 million in Yellowstone in common stock and warrants. In August 2021, through one of our subsidiaries, we entered into a Series B Purchase Agreement with Sky Harbour under which we agreed to invest $55 million directly into SHG and receive Sky Series B Preferred Units. On September 14, 2021, we completed the $55 million transaction, purchasing the Sky Series B Preferred Units. Upon the consummation of the Sky business combination in January 2022, the Sky Series B Preferred Units converted into 5,500,000 shares of Sky's Class A common stock. In December 2021, we entered into an additional subscription agreement (the "Sky Subscription Agreement") with Sky under which we agreed to provide Sky an additional $45 million through the purchase of 4,500,000 shares of Class A common stock upon the closing of the Sky business combination. As part of the Sky business combination, all SHG equity holders retained 100% of their equity in the combined company. The cash proceeds from the Sky business combination and private activity bonds issued by Sky in September 2021 are expected to be used to fund the completion of four new airport hangar campuses in addition to expansion at SHG’s location currently in operation, the acquisition of a fifth airport hangar, and general working capital purposes.

The foregoing summary of the Series B Purchase 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 Series B Purchase Agreement, a copy of which is attached as Exhibit 10.1 to a Form 8-K as filed with the SEC on August 3, 2021 and the additional $45 million investment as evidenced by the Subscription Agreement attached as Exhibit 1.1 to a Form 8-K as fled with the SEC on December 23, 2021. Capitalized terms used herein have the meaning given to such terms in the Series B Purchase Agreement and the Sky Subscription Agreement, as applicable.

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We believe that our existing cash and short-term investments, funds available through the Credit Agreement Link entered into on August 12, 2019, as amended, any proceeds from the Sale of Placement Shares, 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, 2021, we had approximately $73 million in unrestricted cash, $88 million in U.S. treasury trading securities, and $71 million in marketable equity 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 Link’s current credit facility, any 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, insurance and broadband businesses. 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. Link’s credit facility requires it to meet a fixed charge coverage ratio and other financial covenants. Link’s ability to comply with these loan covenants may be affected by factors beyond its control and a breach of any loan covenants would likely result in an event of default under the Credit Agreement, 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.

We conduct and plan to continue to conduct our activities in such a manner as not to be deemed an investment company under the Investment Company Act.  Therefore, no more than 40% of our total assets can be invested in investment securities, as such term is defined in the Investment Company Act. In addition, we do not invest or intend to invest in securities as our primary business. 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 investments 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.

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.

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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.

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 variable interest entities 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.

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:

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.

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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. 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.  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.

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. For transactions that meet the definition of a business combination, 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 that meet the definition of asset purchases, we allocate the purchase price to the assets acquired and the liabilities assumed at their estimated relative 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 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 estimate the applicable discount rate, the timing and amount of future cash flows, the applicable income tax rates, and an appropriate customer attrition rate.

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Class A Common Stock Subject to Possible Redemption

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 contained a redemption feature which allowed 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 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. In January 2022, the Sky business combination with Sky was completed and, as a result, the Class A common stock subject to redemption held by public stockholders ceased to exist as all redemption rights terminated upon the closing of the business combination. Upon the closing of the Sky business combination, holders of 12,061,041 shares of Sky Class A common stock exercised their right to redeem those shares for cash at an approximate price of $10.20 per share, for an aggregate of approximately $123 million, which was paid to such holders immediately following the closing of the Sky business combination, and 1,537,857 shares of Class A common stock sold in the Yellowstone initial public offering were not redeemed.

Yellowstone 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 reflected as charges against additional paid in capital and retained earnings.

Warrants Accounting

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 that are not indexed to Yellowstone's own 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 as a non-cash gain or loss on the statements of operations. The fair value of the warrants was initially estimated using a binomial lattice model and is subsequently valued based upon the warrants' observable trading price (see Note 9).  There are no warrants for shares of Yellowstone's common stock that are indexed to Yellowstone's own stock.

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.