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Note 6 - Business Acquisitions

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

NOTE 6. BUSINESS ACQUISITIONS

2020 Acquisitions

During the year ended December 31, 2020, we completed two acquisitions of broadband service providers and related assets. These acquisitions were accounted for as business combinations under the provisions of ASC 805. A summary of the acquisitions is provided below.

Broadband Acquisitions

FIF AireBeam

On March 10, 2020, FIF AireBeam, LLC, our wholly-owned subsidiary, acquired substantially all of the business assets of FibAire Communications, LLC, which we refer to as "FibAire", a broadband services provider, as well as other assets used in the business operations owned by entities related to FibAire. The acquisition was accounted for as a business combination under the provisions of ASC 805. Under the terms of the asset purchase agreement, all purchased assets were sold on a debt-free basis to AireBeam. The total purchase price of $13,712,491 was paid 90% in cash and the remaining 10% of the purchase price was paid by issuing to FibAire 10% of the outstanding equity of AireBeam. $1,851,186 of the cash proceeds will be held in escrow for a minimum of one year from the closing to provide indemnification for certain representations and warranties made by FibAire in the asset purchase agreement. At any time, FibAire has the option, but not the obligation, to sell AireBeam its entire ownership interest in AireBeam. AireBeam would be obligated to purchase the units and pay for the purchase over a three-year period if FibAire elects to exercise this option. At any time after December 31, 2023, AireBeam has the option, but not the obligation, to purchase FibAire’s ownership interest in AireBeam, with payment due in full upon exercise of the option. The purchase price for the units under either of these put/call options is based upon a multiple of earnings before interest, taxes, depreciation, amortization, and certain other expenses.

The following is a summary of the allocation of the purchase price, which includes the final fair value allocation of the assets acquired and liabilities assumed:

		December 31, 2020
Assets Acquired
Property, plant and equipment		$	3,112,459
Customer relationships			1,480,000
Permits			260,000
Trade names and trademarks			970,000
Goodwill			7,124,158
Software			990,000
Right of use assets			337,966
Other			184,737

Total Assets Acquired			14,459,320

Liabilities Assumed
Accounts payable and deferred revenue			317,768
Lease liabilities			337,966
Other			91,095

Total Liabilities Assumed			746,829

Total		$	13,712,491

AireBeam's results of operations are recognized from March 10, 2020, the date of acquisition, through December 31, 2020. For the year ended December 31, 2020, revenues and earnings recognized from the date of acquisition in our consolidated statement of operations were $3,772,109 and $364,125, respectively. Acquisition costs of $287,934 were expensed in professional fees during the year. Included in our property, plant, and equipment caption are fiber, tower, and broadband equipment assets acquired in the transaction which have useful lives ranging from five to twenty years. The intangible assets include customer relationships and permits (ten year useful life) and trade names and trademarks (twenty year useful life).

Broadband Acquisitions

FIF Utah

On December 29, 2020, FIF Utah, our wholly-owned subsidiary, acquired substantially all of the business assets of Utah Broadband, LLC, which we refer to as “UBB”, a broadband services provider, as well as other assets used in the business operations owned by entities related to UBB. Under the terms of the Agreement, FIF Utah will assume only certain liabilities of UBB. The total purchase price of $26,603,700 was paid 80% in cash and the remaining 20% of the purchase price was paid by issuing to UBB 20% of the outstanding equity of FIF Utah. A portion of the cash purchase price will be held in escrow to provide a source of indemnification for any breaches of the representations and warranties, covenants and other obligations of UBB under the Agreement. At any time, UBB has the option, but not the obligation, to sell FIF Utah its entire ownership interest in FIF Utah. FIF Utah would be obligated to purchase the units and pay for the purchase over a three-year period if UBB elects to exercise this option. Subject to the occurrence of certain future events, FIF Utah has the option, but not the obligation, to purchase UBB’s ownership interest in FIF Utah, with payment due in full upon exercise of the option. The purchase price for the units under either of these put/call options is based upon a multiple of earnings before interest, taxes, depreciation, amortization, and certain other expenses.

Due to the timing of the transaction, the initial accounting for the business combination is incomplete. In order to develop our preliminary fair values, we utilized asset information received from UBB and fair value allocation benchmarks from similar completed transactions. We are currently in the process of assessing UBB’s documentation of contracts related to customer relationships, detailed structure reports, operating leases, and asset retirement obligations; and therefore the initial allocation of the purchase price is subject to refinement.

The purchase was recorded at fair value and preliminarily allocated as follows:

December 31, 2020

Assets Acquired

Property, plant and equipment
$ 6,170,000

Customer relationships
7,400,000

Permits
330,000

Trade names and trademarks
1,910,000

Goodwill
11,030,000

Right of use assets
3,226,355

Other
201,000

Total Assets Acquired
30,267,355

Liabilities Assumed

Accounts payable and deferred revenue
437,300

Lease liabilities
3,226,355

Total Liabilities Assumed
3,663,655

Total
$ 26,603,700

FIF Utah's results of operations are recognized from December 29, 2020, the date of acquisition, through December 31, 2020. For the year ended December 31, 2020, revenues and earnings recognized from the date of acquisition in our consolidated statement of operations were $64,428 and $21,340, respectively. Acquisition costs of $352,998 were expensed in professional fees during the year. Included in our property, plant, and equipment caption are fiber, tower, and broadband equipment assets acquired in the transaction which have useful lives ranging from five to twenty years. The intangible assets include customer relationships and permits (ten year useful life) and trade names and trademarks (twenty year useful life).

2019 Acquisitions

Billboard Acquisitions

Image Outdoor Advertising, Inc.

On August 30, 2019, our subsidiary, LMSE, acquired from Image Outdoor Advertising, LLC, which we refer to as “Image”, 61 billboard structures and related assets located in West Virginia. The acquisition was completed for the purpose of expanding our presence in the outdoor advertising market in the Southeastern United States. The purchase price consisted of $6,915,501 in cash, net of adjustments, and 34,673 shares of our Class A common stock for a total purchase price of $7,625,604 and includes $398,750 that was held back by LMSE and will be disbursed, subject to any claims for indemnification, over an 18 month period. The final purchase price allocation related to Image includes property, plant and equipment, intangibles, and goodwill of $1,544,970, $3,152,000 and $3,058,633, respectively, as well as other net liabilities of $129,999.

Alpha Displays, Inc.

On October 1, 2019, our subsidiary, LMO, acquired certain billboard assets in Missouri from Alpha Displays, Inc. The purchase price for the acquired assets was $1,337,685 and includes $380,546 that was held back by LMO and will be disbursed, subject to any claims for indemnification, over an 18 month period. The assets were acquired for the purpose of expanding our presence in the outdoor advertising market in the Midwestern United States.

Pro Forma Information

The following is the unaudited pro forma information assuming all business acquisitions occurred on January 1, 2019. For all of the business acquisitions depreciation and amortization have been included in the calculation of the pro forma information provided below, based upon the actual or preliminary acquisition costs. Depreciation is computed on the straight-line method over the estimated remaining economic lives of the assets, ranging from two years to twenty years. Amortization is computed on the straight-line method over the estimated useful lives of the assets ranging from two to fifty years.

For the Year Ended

December 31,

2020

2019

Revenue
$ 55,925,700 $ 55,824,936

Net Income Attributable to Common Stockholders
$ 2,933,789 $ 1,775,851

Basic and Diluted Net Income per Share
$ 0.11 $ 0.08

Basic and Diluted Weighted Average Class A and Class B Common Shares Outstanding
25,738,225 22,801,394

The information included in the pro forma amounts is derived from historical information obtained from the sellers of the businesses. The pro forma amounts above for basic and diluted weighted average shares outstanding have been adjusted for 2019 to include the stock issued in connection with the acquisition of Image.