10-K: Old Market Capital Corporation Pivots to Broadband, Reports Fiscal 2025 Net Loss Amid Restructuring and Acquisition

Old Market Capital Corporation completed a significant strategic transformation in fiscal year 2025, divesting its consumer finance business and acquiring a controlling interest in Ohio-based broadband provider Amplex, resulting in a net loss from continuing operations and identified material weaknesses in internal controls.

Summary

• Old Market Capital Corporation (OMCC) completed a major restructuring in fiscal year 2025, transitioning from a specialized consumer finance company to a holding company focused on broadband and other opportunistic investments.
• The company sold substantially all of its finance receivables and repossessed assets to Westlake Financial on April 26, 2024, recognizing a gain of $1.7 million from discontinued operations.
• On June 15, 2024, OMCC acquired an initial 56.5% controlling interest in Amplex Electric Inc., a broadband, VOIP, and video services provider in Northwest and North Central Ohio, increasing its ownership to 60.9% by December 2024 with an additional $4.5 million investment.
• As of March 31, 2025, Amplex served approximately 13,000 broadband customers, including 4,400 fiber subscribers, and had completed over 12,000 fiber passings.
• For the fiscal year ended March 31, 2025, OMCC reported total revenue of $9.366 million, primarily from Amplex's operations, compared to $0 in the prior year due to the business transformation.
• The company incurred a net loss from continuing operations of $8.351 million for fiscal year 2025, compared to a loss of $6.098 million in fiscal year 2024.
• Total operating expenses significantly increased to $16.325 million in fiscal year 2025 from $6.243 million in fiscal year 2024, driven by professional fees and restructuring expenses related to the Amplex acquisition and increased depreciation/amortization.
• OMCC reported a net loss attributable to common shareholders of $5.149 million, or $0.77 per share, for fiscal year 2025, a substantial improvement from the $20.801 million loss, or $2.86 per share, in fiscal year 2024, largely due to the gain from discontinued operations.
• The company identified material weaknesses in its internal control over financial reporting as of March 31, 2025, related to complex accounting standards, measurement of acquired assets, EPS calculations, assessment documentation, segregation of duties at Amplex, and IT policies.
• OMCC settled a class-action lawsuit related to its former consumer finance business, with the obligation to be satisfied by its insurers.
• The company's headquarters moved from Clearwater, Florida, to Omaha, Nebraska, effective March 1, 2025.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the reported net loss from continuing operations, significant increase in general and administrative expenses, and the identification of material weaknesses in internal controls. While the strategic pivot to broadband and the RUS loan offer future potential, the current financial performance and control deficiencies weigh heavily on the immediate outlook.

Positives

• Successful divestiture of the former consumer finance business, which generated a gain of $1.7 million from discontinued operations in fiscal year 2025.
• Strategic acquisition of a controlling interest in Amplex, a broadband provider, aligning with the company's new focus on stable, income-generating ventures.
• Amplex's strong customer base of approximately 13,000 broadband customers, including 4,400 fiber subscribers, and over 12,000 fiber passings completed as of March 31, 2025.
• Access to a significant $21.341 million loan under the USDA's Rural Utilities Service (RUS) Reconnect loan program for broadband infrastructure development, with a favorable 2% interest rate and a three-year deferral period for payments.
• The company's strong balance sheet and cash position, with cash and cash equivalents increasing to $24.516 million as of March 31, 2025.
• Resolution and settlement of the class-action lawsuit related to the discontinued consumer finance operations, with the financial obligation primarily covered by insurers.

Negatives

• Reported a net loss from continuing operations of $8.351 million for the fiscal year ended March 31, 2025.
• Significant increase in general and administrative expenses to $10.813 million in fiscal year 2025, primarily due to professional fees and restructuring costs associated with the Amplex acquisition.
• Incurred a $1.711 million emigration tax expense due to the redomestication from British Columbia to Delaware.
• Recognized a $1.103 million loss on dissenting shareholders' liability related to the settlement with shareholders who dissented from the sale of assets to Westlake.
• Identified material weaknesses in internal control over financial reporting as of March 31, 2025, indicating deficiencies in financial reporting processes, particularly concerning complex transactions, EPS calculations, documentation, and segregation of duties at the Amplex subsidiary.
• Net cash used in operating activities was $1.900 million for fiscal year 2025, a decrease from $1.827 million provided in the prior year.

Risks

• Weak economic conditions may negatively impact Amplex's revenue as customer spending patterns for broadband services may decrease.
• Amplex is subject to various federal, state, and local laws and regulations, including potential new FCC regulations, which could increase compliance costs or restrict operations.
• Legislative and regulatory changes, such as reclassification of internet services or new privacy restrictions, could adversely affect Amplex's business.
• Changes to radio spectrum operating regulations or forced relocations of licensed spectrum could result in significant costs or loss of customers for Amplex's fixed wireless network.
• The company may incur losses due to asset impairment charges related to goodwill and other intangible assets, which are subject to annual impairment tests.
• Reliance on executive leadership and key personnel, with the loss or limited availability of these individuals potentially negatively impacting the business.
• Operating as a U.S. public company exposes the company to increased costs and regulatory burdens, including SEC reporting, NASDAQ listing standards, and Sarbanes-Oxley Act compliance.
• Future sales of equity securities could significantly dilute existing investments, and there is no assurance of raising funds on favorable terms.
• Incurring additional debt financing could impose restrictive covenants, limit financial flexibility, and increase vulnerability to adverse economic conditions.
• The company's ability to access capital may be limited by general economic, market, or industry conditions, market perceptions of asset quality, and earnings/distributions.
• Cybersecurity threats and IT system disruptions could significantly impact business, financial condition, and operations, leading to data loss, regulatory fines, and reputational damage.
• Amplex operates in a highly competitive market against companies with significantly greater resources, and its inability to compete effectively could harm its business and reduce market share.

Future Outlook

The company intends to continue pursuing an opportunistic approach in identifying investment opportunities that align with its criteria, aiming to drive growth in intrinsic value per share. This includes retaining capital for reinvestment in the growth of its existing operating subsidiary (Amplex), pursuing strategic investments, and/or funding new, long-term income-generating ventures. The company will regularly evaluate capital allocation options based on management's judgment for strong long-term returns. In the broadband sector, the strategy is to expand presence in rural areas, capitalizing on increasing demand for high-speed internet, with a focus on fiber-to-the-home (FTTH) as a long-term asset.

Management Comments

• "Our goal is to drive growth in intrinsic value per share at an appealing rate by retaining capital for reinvestment in the growth of our existing operating subsidiary, pursuing strategic investments, and/or funding new, long-term income-generating ventures."
• "We will regularly evaluate each capital allocation option, and decisions will be made based on our management team's judgment of where capital is most likely to deliver the potential for strong long-term returns."
• "We believe that long-term stockholder value is best achieved by business practices that support the broader interests of all stakeholders, including our employees."
• "We are committed to fostering a workplace where employees feel engaged, empowered, and appropriately rewarded."
• "Our culture is central to how we operate and grow, and we actively promote collaboration, creativity, inclusivity, and a sense of ownership across the organization."
• "We believe our relationship with employees is strong."
• "Hiring, developing, and retaining talent is a key priority."
• "We strive to cultivate a diverse and inclusive workplace where employees feel respected and are supported in reaching their full potential."
• "We believe that our cybersecurity program is robust and effective, and we will continue to invest in and improve our capabilities to address evolving threats."
• "We are committed to transparency and will provide updates on any material cybersecurity incidents that may impact our Company or our stakeholders."
• "Management notes that all related party transactions and relationships, including this sublease agreement and resulting transactions, are subject to the Company's Related Party Transaction Policy and management believes that the transactions contemplated by this sublease were made at terms which approximate market, that are fair and reasonable to the Company and substantially the same as would apply if the other party was not a related party."

Industry Context

Old Market Capital Corporation's strategic pivot into the broadband sector, particularly focusing on rural and underserved communities in Ohio, aligns with a broader industry trend of increasing demand for high-speed internet, accelerated by remote work, education, and telehealth needs post-COVID-19. The emphasis on fiber-to-the-home (FTTH) technology reflects the industry's shift towards more robust and higher-bandwidth solutions, moving away from traditional copper infrastructure. The fragmented nature of the broadband market, with many small operators, presents ongoing acquisition opportunities for companies like OMCC seeking to expand their footprint. However, the industry is highly competitive, with major players like Brightspeed, Charter Communications, Comcast, Frontier, AT&T, T-Mobile, and Verizon potentially expanding into rural markets, and emerging technologies like 5G home internet posing future challenges. Regulatory oversight by the FCC and state/local governments also remains a significant factor, influencing deployment and operational costs.

Comparison to Industry Standards

• The document states that Amplex's broadband services compete with major operators such as Brightspeed, Charter Communications, Comcast, and Frontier, as well as telecom companies like AT&T, T-Mobile, and Verizon. However, it does not provide specific comparable financial or operational metrics (e.g., ARPU, churn rates, network speeds, or market share) against these larger, more resourced competitors.
• The filing highlights that Amplex serves underserved communities where existing providers often fail to deliver adequate speed and bandwidth, implying a focus on a niche market rather than direct head-to-head competition on all fronts with established incumbents.
• The company's strategy to expand fiber-to-the-home (FTTH) is noted as aligning with a long-term asset focus, but no specific benchmarks for FTTH deployment costs, subscriber acquisition costs, or return on investment are provided for comparison with industry averages or specific projects by other providers.

Corporate Governance

Legal Proceedings

• The company was involved in a class-action lawsuit, Nicholas Financial, Inc. v. Jeremiah Gross, concerning allegedly deficient notices regarding the sale of recovered vehicles and deficiency calculations from its former consumer finance business.
• A default judgment was initially entered against Gross for $7,984, which was later set aside, leading to a class-action counterclaim against the company.
• The lawsuit was settled, and a Final Approval Order was entered on May 15, 2024, finding the agreement to be in good faith and approving the company's assignment of claims against certain insurers to the Class.
• A Final Judgment was entered against the company in favor of the Class, with the court holding that the company had no obligation to satisfy the judgment beyond funds paid by Gemini Insurance Company, with any remaining amount to be satisfied from other insurers and agents.
• A Cross-Claim was filed against American Zurich Insurance Company (AZIC), American Guarantee and Liability Insurance Company (AGLIC), and Zurich American Insurance Company (ZAIC) for breach of contract, duty to defend, and bad faith failure to defend or settle.
• The Cross-Claim was initially removed to federal court but was remanded back to state court on August 14, 2024.
• On September 5, 2024, the state court stayed the Cross-Claim pending the state Appeals Court's disposition of Zurich's appeal, which was later dismissed on April 25, 2025, for failure to prosecute.
• On October 16, 2024, Gross and the class reached an agreement with the Company and Zurich to resolve the dispute regarding the Company's insurance coverage under the Zurich policies, which was approved by the Circuit Court for Clay County, Missouri, on May 22, 2025.
• Gemini Insurance Company made the Class Action Settlement payment on behalf of the Company, which cleared on June 3, 2025.

Related Party Transactions

• Amplex leases certain property (an office building and warehouse) from the Red Bug Entities, which are majority-owned by Amplex's Chief Executive Officer. The office building lease calls for monthly payments of approximately $13 thousand through December 14, 2031. The warehouse building lease calls for monthly payments of approximately $15 thousand, with annual CPI-indexed increases, through July 31, 2038. As of March 31, 2025, related ROU assets and liabilities totaled approximately $3.0 million, with operating lease expenses of $0.3 million recorded.
• The company entered into a new office space lease agreement in Omaha, Nebraska, on December 2, 2024, with Boston Omaha Corporation as the sublandlord. The CEO of OMCC and two other OMCC Board members also serve on the Board of Directors of Boston Omaha Corporation. Additionally, Boston Omaha Corporation's CEO/Chairman is the largest shareholder of OMCC. Management believes these transactions were made at market terms, fair and reasonable to the company, and substantially the same as if the other party was not related.

Stakeholder Impact

• **Shareholders**: Experienced significant strategic shift, including divestiture of old business and acquisition of new broadband business. Faced dilution risk from potential future capital raises and a loss on dissenting shareholders' liability. The identified material weaknesses in internal controls could impact investor confidence and financial reporting reliability.
• **Employees**: The company maintains a strong relationship with its 82 employees (79 in broadband operations, 3 in administrative/corporate), offering competitive compensation, benefits (401(k) with company matching, healthcare, parental leave), and an Employee Assistance Program. The closure of the Clearwater, Florida office and relocation to Omaha, Nebraska, impacted employees at the former headquarters.
• **Customers (Amplex)**: Benefit from Amplex's provision of broadband internet, VOIP, and video services, particularly in underserved rural areas of Northwest and North Central Ohio. The company's strategy aims to expand high-speed internet access, including fiber-to-the-home (FTTH), to meet growing demand.
• **Suppliers/Vendors**: The company's reliance on information technology systems and third-party service providers for data management and operations means cybersecurity incidents could impact these relationships. The acquisition of Amplex likely led to new supplier relationships for broadband infrastructure and equipment.
• **Creditors**: The company's ability to access capital and incur debt is influenced by market conditions and its credit strength. The RUS Loan provides significant financing for Amplex's broadband projects, secured by Amplex's assets. The settlement of the class-action lawsuit, with insurers covering the judgment, mitigates direct financial impact on the company's balance sheet.

Next Steps

• Continue to pursue additional controlling interests in other companies and sectors yet to be determined, following an opportunistic investment approach.
• Drive growth in intrinsic value per share by retaining capital for reinvestment in the growth of Amplex, pursuing strategic investments, and/or funding new, long-term income-generating ventures.
• Regularly evaluate capital allocation options based on management's judgment for strong long-term returns.
• Expand presence in the rural broadband sector, anticipating continued growth in demand for reliable, high-capacity internet access, with a focus on fiber-to-the-home (FTTH).
• Continue ongoing integration of Amplex and incorporate its controls and related procedures into the company's internal control over financial reporting.
• Remediate identified material weaknesses in internal control over financial reporting, including establishing and refining internal procedures and controls for complex transactions, reviewing EPS calculations, improving assessment documentation, addressing segregation of duties at Amplex, and formalizing IT policies and user access reviews.

Key Dates

Recommendation

Keywords

Broadband, Telecommunications, Holding Company, SEC Filing, 10-K, Amplex, Fiber Optic, Wireless Internet, VOIP, Strategic Restructuring, Acquisition, Financial Reporting, Internal Controls, Risk Factors, Corporate Governance, Rural Broadband, Ohio, NASDAQ:OMCC