OLD MARKET CAPITAL Corp: Form 10-Q for the period ended Dec 31, 2024

Forward- Looking Information

This Quarterly Report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on management's current beliefs and assumptions, as well as information currently available to management. When used in this document, the words "anticipate", "estimate", "expect", "forecast", "will", "would", "may", "plan", "believe", "intend" and similar expressions are intended to identify forward-looking statements. Although Old Market Capital Corporation, including its subsidiaries (collectively, the "Company", "we", "us", or "our") believes that the expectations reflected or implied in such forward-looking statements are reasonable, it can give no assurance that such expectation will prove to be correct. As a result, actual results could differ materially from those indicated in these forward-looking statements. Forward-looking statements in this Quarterly Report may include, without limitation statements about (1) approval by the Court of the settlement of the litigation involving Mr. Jeremiah Gross, (2) the availability and use of excess capital (including by acquiring businesses or by investing outside of the Company's traditional business), (3) projections of revenue, income, and other items relating to our financial position and results of operations, (4) statements of our plans, objectives, strategies, goals and intentions, (5) statements regarding the capabilities, capacities, market position and expected development of our business operations, and (6) statements of expected industry and general economic trends. These statements are subject to certain risks, uncertainties and assumptions that may cause results to differ materially from those expressed or implied in the forward-looking statements, including without limitation:

• the risk that approval by the Court of the settlement of the litigation involving Mr. Jeremiah Gross may not be granted, either on terms and conditions satisfactory to the Company or at all;
• uncertainties surrounding the Company's success in developing and executing on a new business plan;
• uncertainties surrounding the Company's ability to use any excess capital to increase shareholder returns, by acquiring businesses or investing outside of the Company's traditional business;
• availability of capital (including the ability to access bank financing);
• recently enacted, proposed or future legislation and the manner in which it is implemented, including tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations;
• an increase in legislative and regulatory activity with respect to broadband networks;
• changes in consumer behavior;
• fluctuations in the economy;
• the degree and nature of competition and its effects on the Company's financial results;
• fluctuations in interest rates;
• effectiveness on our risk management processes and procedures, including the effectiveness of the Company's internal control over financial reporting and disclosure controls and procedures;
• our ability to successfully develop and commercialize new or enhanced products or services;
• the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements;
• higher borrowing costs and adverse financial market conditions impacting our funding and liquidity;
• regulation, supervision, examination of our business by governmental authorities and adverse regulatory changes in the Company’s existing and future markets;
• fraudulent activity, employee misconduct or misconduct by third parties;
• failure of third parties to provide various services that are important to our operations;
• alleged infringement of intellectual property rights of others and our ability to protect our intellectual property;
• litigation and regulatory actions;
• our ability to attract, retain and motivate key officers and employees;
• use other third-party vendors and ongoing third-party business relationships;
• cyber-attacks or other security breaches suffered by us;
• disruptions in the operations of our computer systems and data centers;
• the impact of changes in accounting rules and regulations, or their interpretation or application, which could materially and adversely affect the Company's reported consolidated financial statements or necessitate material

delays or changes in the issuance of the Company's audited consolidated financial statements;

• uncertainties associated with management turnover and the effective succession of senior management;
• our ability to realize our intentions regarding strategic alternatives, including the failure to achieve anticipated synergies; and
• the risk factors discussed under "Item 1A - Risk Factors" in our Annual Report on Form 10-K and our other filings made with the U.S. Securities and Exchange Commission ("SEC")

Any forward-looking statements made by us in this document speak only as of the date on which they are made. We are under no obligation, and expressly disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended March 31, 2024, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our 2024 Form 10-K. Our results of operations for the three and nine months ended December 31, 2024, may not be indicative of our future results.

Overview

Old Market Capital Corporation ("OMCC") is a specialized consumer finance company engaged primarily in acquiring and servicing automobile finance installment contracts for purchases of used and new automobiles and light trucks incorporated under the laws of the State of Delaware with a wholly owned subsidiary, Nicholas Data Services, Inc. ("NDS"). NDS historically was engaged in supporting and updating industry specific computer application software for small businesses located primarily in the Southeastern United States. NDS has ceased its operations; however, it continues as the interim holding company for Old Market Capital Corporation. OMCC and NDS are based in Florida, U.S.A.

Change in Operating Strategy

On November 13, 2023, the Company entered into a Master Asset Purchase Agreement (the "Purchase Agreement") with Westlake Services, LLC dba Westlake Financial, a California limited liability company ("Westlake Financial"), pursuant to which the Company has agreed to sell substantially all of the Company's finance receivables and all of its repossessed assets. On April 26, 2024, the transactions contemplated by the Purchase Agreement closed.

On June 15, 2024, Old Market Capital Corporation closed upon the acquisition of 51% of the issued and outstanding common shares of Amplex Electric Inc, which was placed into a newly formed entity Amplex Holdings, Inc. ("Amplex"). Amplex is a provider of broadband internet, voice over internet protocol (VOIP), and video services within service areas located primarily in Northwest and North Central Ohio. As of December 31, 2024, Amplex had approximately 12,850 broadband customers (4,100 fiber subscribers) and over 11,000 fiber passings completed.

Concurrently, on June 15, 2024, the Company converted the outstanding principal of $0.8 million under the Term Loan Advances into 421 shares of Amplex common stock at the Share Purchase Price of $1,792.55 and purchased 1,674 shares of Amplex common stock at the same Share Purchase Price for a purchase price of $3.0 million (collectively, the "Additional NICK Closing Stock"). These transactions concurrently executed at the Transaction Closing Date increased the Company's ownership in Amplex to 56.5%. During the quarter ended December 31, 2024, the Company entered into a Subscription Agreement whereby the Company invested an additional $4.5 million into Amplex, increasing the Company's ownership percentage to 61%.

How We Generate Revenues and Evaluate our Business

The Company generates revenues primarily through customer contracts and provides wireless internet services, fiber internet services, and other services including voice over telephone services. The Company fulfills obligations and recognizes revenue under a contract with a customer by transferring products and services in exchange for consideration from the customer. Payments received or consideration billed in advance are recorded as deferred revenue. Further, the Company records accounts receivable for services billed in advance.

Operating income (loss) is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments. We define operating income (loss) as revenues less operating expenses. Operating expenses include cost of wireless and fiber internet services, cost of other revenue, plant specific and nonspecific operations expenses, general and administrative expenses, and depreciation and amortization expenses.

Result of Operations

Three months ended December 31, 2024 compared to three months ended December 31, 2023

Revenues of Continuing Operations

For the three months ended December 31, 2024 and 2023, our revenues in dollars and as a percentage of total revenues were as follows:

(In thousands)

Revenue totaled $3.0 million for the three months ended December 31, 2024, compared to $0 for the three months ended December 31, 2023. The increase in revenue for the three months ended December 31, 2024 is primarily due to additional services the Company now provides from the acquisition of Amplex that were not provided in the prior period. Through acquiring Amplex, the Company now provides wireless internet services, fiber internet services, and other services including VOIP telephone and video streaming. Further, with the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's revenue is not comparable on a year-over-year basis.

Expenses of Continuing Operations

For the three months ended December 31, 2024 and 2023, our expenses in dollars and as a percentage of total expenses were as follows:

(In thousands)

Cost of Wireless and Fiber Internet Services and Cost of Other Revenue of Continuing Operations

Cost of wireless and fiber internet services totaled $167 thousand for the three months ended December 31, 2024, compared to $0 for the three months ended December 31, 2023. In addition, cost of other revenue totaled $211 thousand for the three months ended December 31, 2024 compared to $0 for the three months ended December 31, 2023. As discussed above, the Company now provides wireless internet, fiber internet, and other services in conjunction with its acquisition of Amplex. Therefore, the cost of wireless and fiber internet services and cost of other revenue increased during the three months ended December 31, 2024 when compared to the prior period. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's cost of wireless and fiber internet services and cost of other revenue is not comparable on a year-over-year basis.

Plant Specific and Plant Nonspecific Operations of Continuing Operations

Plant specific and plant nonspecific operations expenses totaled $648 thousand for the three months ended December 31, 2024, compared to $0 for the three months ended December 31, 2023. Due to the Company's acquisition of Amplex, the Company began providing additional services during the three months ended December 31, 2024 that were not provided in prior periods. Therefore, plant specific and nonspecific operations expenses increased for the three months ended December 31, 2024 when compared to the prior period. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's plant specific and nonspecific operations expenses are not comparable on a year-over-year basis.

General and Administrative Expenses of Continuing Operations

General and administrative expenses totaled $2.1 million for the three months ended December 31, 2024, compared to $1.7 million three months ended December 31, 2023. The increase in general and administrative expenses for the three months ended December 31, 2024 is primarily due to additional professional fees and restructuring expenses incurred in relation to the acquisition of Amplex which was acquired by the Company during the period. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's general and administrative expenses are not comparable on a year-over-year basis.

Depreciation and Amortization Expenses of Continuing Operations

Depreciation and amortization expense totaled $501 thousand for the three months ended December 31, 2024, compared to $22 thousand three months ended December 31, 2023. The increase in depreciation and amortization expense for the three months ended December 31, 2024 is primarily due to an increase in property, plant, and equipment and intangible assets resulting from the Company's acquisition of Amplex. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's depreciation and amortization expense is not comparable on a year-over-year basis.

Discontinued Operations

Income from discontinued operations was $0.3 million for the three months ended December 31, 2024 compared to a loss of $10 million for the three months ended December 31, 2023. The increase in income for three months ended December 31, 2024 is primarily attributed to a decrease in general and administrative expenses and a decrease in credit losses due to the sale of the finance receivables and repossessed assets to Westlake when compared to the three months ended December 31, 2023.

Nine months ended December 31, 2024 compared to nine months ended December 31, 2023

Revenues of Continuing Operations

For the nine months ended December 31, 2024 and 2023, our revenues in dollars and as a percentage of total revenues were as follows:

(In thousands)

Revenue totaled $6.4 million for the nine months ended December 31, 2024, compared to $0 for the nine months ended December 31, 2023. The increase in revenue for the nine months ended December 31, 2024 is primarily due to additional services the Company now provides from the acquisition of Amplex that were not provided in the prior period. Through acquiring Amplex, the Company now provides wireless internet services, fiber internet services, and other services including VOIP telephone and video streaming. Further, with the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's revenue is not comparable on a year-over-year basis.

Expenses of Continuing Operations

For the nine months ended December 31, 2024 and 2023, our expenses in dollars and as a percentage of total expenses were as follows:

(In thousands)

Cost of Wireless and Fiber Internet Services and Cost of Other Revenue of Continuing Operations

Cost of wireless and fiber internet services totaled $354 thousand for the nine months ended December 31, 2024, compared to $0 for the nine months ended December 31, 2023. In addition, cost of other revenue totaled $456 thousand for the nine months ended December 31, 2024 compared to $0 for the nine months ended December 31, 2023. As discussed above, the Company now provides wireless internet, fiber internet, and other services in conjunction with its acquisition of Amplex. Therefore, the cost of wireless and fiber internet services and cost of other revenue increased during the nine months ended December 31, 2024 and when compared to the prior period. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's cost of wireless and fiber internet services and cost of other revenue is not comparable on a year-over-year basis.

Plant Specific and Plant Nonspecific Operations of Continuing Operations

Plant specific and plant nonspecific operations expenses totaled $1,311 thousand for the nine months ended December 31, 2024, compared to $0 for the nine months ended December 31, 2023. Due to the Company's acquisition of Amplex, the Company began providing additional services during the nine months ended December 31, 2024 that were not provided in prior periods. Therefore, plant specific and nonspecific operations expenses increased for the nine months ended December 31, 2024 when compared to the prior period. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's plant specific and nonspecific operations expenses are not comparable on a year-over-year basis.

General and Administrative Expenses of Continuing Operations

General and administrative expenses totaled $8.7 million for the nine months ended December 31, 2024, compared to $4.8 million nine months ended December 31, 2023. The increase in general and administrative expenses for the nine months ended December 31, 2024 is primarily due to additional professional fees and restructuring expenses incurred in relation to the acquisition of Amplex which was acquired by the Company during the period. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's general and administrative expenses are not comparable on a year-over-year basis.

Depreciation and Amortization Expenses of Continuing Operations

Depreciation and amortization expense totaled $1,073 thousand for the nine months ended December 31, 2024, compared to $66 thousand for the nine months ended December 31, 2023. The increase in depreciation and amortization expense for the nine months ended December 31, 2024 is primarily due to an increase in property, plant, and equipment and intangible assets resulting from the Company's acquisition of Amplex. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's depreciation and amortization expense is not comparable on a year-over-year basis.

Emigration Tax Expense of Continuing Operations

Emigration tax expense was $1.7 million for the nine months ended December 31, 2024 compared to $0 for the nine months ended December 31, 2023. The increase in emigration tax expense in the current period is due to the Company completing its continuation and domestication from a company incorporated under the laws of British Columbia to a corporation incorporated under the laws of the State of Delaware as of April 18, 2024.

Loss on Dissenting Shareholders' Liability of Continuing Operations

Loss on dissenting shareholders' liability was $1.1 million for the nine months ended December 31, 2024 compared to $0 for the nine months ended December 31, 2023. The increase in loss on dissenting shareholders' liability is a result of the change in fair value of the liability during the period that represents the amount owed to dissenting shareholders from the sale of assets to Westlake. As of December 31, 2024, the Company settled the total amount owed to the dissenting shareholders.

Discontinued Operations

Income from discontinued operations was $3.1 million for the nine months ended December 31, 2024 compared to the loss of $15.7 million for the nine months ended December 31, 2023. The increase in income for the nine months ended December 31, 2024 is primarily attributed to a decrease in general and administrative expenses and a decrease in credit losses due to the sale of the finance receivables and repossessed assets to Westlake when compared to the nine months ended December 31, 2023.

Liquidity and Capital Resources

During the nine months ended December 31, 2024, the Company closed on the Share Purchase Agreement with Amplex, in which the Company purchased 51% of the issued and outstanding common shares, no par value per share, of Amplex and to make payment to holders of options for Amplex’s common shares in consideration of cancellation of such options for total purchase consideration of $18.4 million. In conjunction with the closing of the Share Purchase Agreement, the Company converted the outstanding principal and accrued interest of approximately $0.8 million under the Term Loan Advances into 421 shares of Amplex common stock at the Share Purchase Price of $1,792.55 and purchased an additional 1,674 shares of Amplex common stock at the share purchase price of $1,792.55 per share for a purchase price of $3.0 million. For further details of the acquisition, refer to Note 3.

The Company's cash flows are summarized as follows:

(In thousands)

Net cash (used in) provided by operating activities decreased for the nine months ended December 31, 2024 when compared to the nine months ended December 31, 2023. The decrease in cash (used in) provided by operating activities was primarily due to a decrease in net loss of $16.5 million, noncash charge of $1.1 million for the loss on dissenting shareholders' liability, and net change in operating assets and liabilities of $1.0 million, partially offset by a decrease in cash provided by operating activities from discontinued operations of $22.3 million. Further, with the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's change in cash provided by operating activities is not comparable on a year-over-year basis.

Net cash provided by investing activities decreased for the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023. The decrease in net cash provided by investing activities is primarily due to $18.4 million of cash paid for the acquisition of Amplex in June 2024, partially offset by an increase in net cash provided by investing activities from discontinued operations of $74.4 million for the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023. With the Company's Purchase Agreement in April of 2024 and the acquisition in June of 2024, the Company's change in cash provided by investing activities is not comparable on a year-over-year basis.

Net cash used in financing activities decreased during the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023. The decrease was primarily due to the repurchase of $5.6 million worth of shares of common stock held by dissenting shareholders, offset by the proceeds long-term debt of $615 thousand during the nine months ended December 31, 2024.

We have no material commitments for capital expenditures as of December 31, 2024. Part of our growth strategy, however, is to acquire businesses. We would anticipate funding such activity through cash on hand, the issuance of debt, Common Stock, restricted stock units, and warrants for our Common Stock or a combination thereof.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Significant Developments

None.

Critical Accounting Policies and Estimates

A critical accounting estimate is an estimate that: (i) is made in accordance with generally accepted accounting principles, (ii) involved a significant level of estimation uncertainty and (iii) has had or is reasonably likely to have a material impact on the Company's financial condition or results of operations.

There have been changes in our critical accounting policies from those disclosed in our 2024 Annual Report on Form 10-K related to the Company’s acquisition of Amplex which closed June 15, 2024. We revised our critical policies relating to principles of consolidation, trade receivables and allowance for doubtful accounts, and revenue recognition.

Basis of Presentation

The accompanying condensed consolidated financial statements are stated in U.S. dollars and are presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP”). Management believes it has made all necessary adjustments so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing the condensed consolidated financial statements are reasonable and prudent. The condensed consolidated financial statements include the accounts of the Company, its wholly owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. All intercompany transactions and balances have been eliminated upon consolidation.

Business Combinations

We account for our business combinations using the acquisition accounting method, which requires us to determine the fair value of identifiable assets acquired and liabilities assumed, including any contingent consideration, to properly allocate the purchase price to the individual assets acquired and liabilities assumed and record any residual purchase price as goodwill in accordance with ASC 805, Business Combinations. We identify and attribute fair values and estimated lives to the intangible assets acquired and allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates and asset lives. These determinations will affect the amount of depreciation and amortization expense recognized in future periods. Contingent consideration is initially recorded at its fair value at the acquisition date and is revalued every financial reporting date thereafter. Adjustments to contingent consideration liabilities after the completion of acquisition accounting are recorded in the consolidated statement of operations. We base our fair value estimates on assumptions we believe are reasonable but recognize that the assumptions are inherently uncertain.

If the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. Once the measurement period ends, which in no case extends beyond one year from the acquisition date, revisions to the accounting for the business combination are recorded in earnings.

All acquisition-related costs, other than the costs to issue debt or equity securities, are accounted for as expenses in the period in which they are incurred.

Accounts Receivable and Allowances for Credit losses

Trade accounts receivable are recorded at invoiced amounts, net of allowance for credit losses, if applicable, and are unsecured and do not bear interest.

The allowance for credit losses is based on the probability of future collection under the current expect credited loss impairment model under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Assets. Under the CECL impairment model, we determine the allowance by applying a loss-rate method based on an aging schedule using our historical loss rate. We also consider reasonable and supportable current information in determining its estimated loss rates, such as macroeconomic trends or other factors including customers’ credit risk and historical loss experience. There is significant judgment applied in estimating the allowance for credit losses. These assumptions and estimates are susceptible to significant changes based on the current environment.

The adequacy of the allowance is evaluated on a regular basis. Account balances are written off after all means of collection are exhausted and the balance is deemed uncollectible. Subsequent recoveries are credited to the allowance. Changes in the allowance are recorded as adjustments to bad debt expense in the period incurred.

Discontinued Operations

We record discontinued operations when the disposal of a separately identified business unit constitutes a strategic shift in our operations, as defined in ASC 205-20, Discontinued Operations.

Contingent Liability

We have been, and may in the future be, involved in legal proceedings which are subject to significant uncertainty. We record an estimated loss for a contingency in our condensed consolidated financial statements for these matters as a charge to income when a loss is known or considered probable and the amount can be reasonably estimated. Management reviews these estimates each accounting period as additional information becomes known and adjusts the loss provision when appropriate. In determining whether a loss should be recorded or adjusted, management evaluates several factors, including advice from outside legal counsel, in order to estimate the likelihood of an unfavorable outcome and to make a reasonable estimate of the amount of loss or range of reasonably possible loss. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the condensed consolidated financial statements. If a loss is probable but the amount of loss cannot be reasonably estimated, we disclose the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made). Changes in these factors could have a material impact on our financial position, results of operations and operating cash flows for any particular quarter or year. We do not recognize gain contingencies until they are realized. Legal costs incurred in connection with loss contingencies are expensed as incurred. Refer to Note 2 and Note 12 of our condensed consolidated financial statements for further information.

Fair Value Measurements

ASC 820, *Fair Value Measurements (“*ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair value measurements. ASC 820 classifies these inputs into the following hierarchy:

Level 1 inputs: Quoted prices for identical instruments in active markets.

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 inputs: Instruments with primarily unobservable value drivers.

Certain of our assets and liabilities are required to be recorded at fair value either on a recurring or nonrecurring basis and are presented with Level 3 of the fair value hierarchy, such as Term Loan Advances, dissenting shareholders’ liability and contingent liability. Our non-financial assets such as property, plant, and equipment are recorded at cost. Fair value adjustments are made to these non-financial assets, on a nonrecurring basis, during the period an impairment charge is recognized, as applicable.

Certain of our financial instruments are carried at fair value and are presented within Level 1 of the fair value hierarchy, such as money market funds included within cash and cash equivalents on the condensed consolidated balance sheet. In addition, the carrying amounts reflected in the condensed consolidated balance sheet for cash and cash equivalents, accounts receivable, materials and supplies, prepaid expenses and other assets, accounts payable, and accrued expenses and other liabilities approximate fair value due to their short-term nature. Refer to Note 2 for additional information.

Revenue Recognition

In accordance with ASC 606, Revenue Recognition, we recognize revenue from contracts with customers using the five-step model:

1. identify the customer contract;

2. identify performance obligations that are distinct;

3. determine the transaction price;

4. allocate the transaction price to the distinct performance obligations; and

5. recognize revenue as the performance obligations are satisfied.

We generate revenues primarily from our wireless internet services, fiber internet services, and other services.

Identify the customer contract

A customer contract is generally identified when there is approval and commitment from both us and our customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability is probable. Specifically, we obtain written/electronic signatures on contracts and purchase orders, if said purchase orders are issued in the normal course of business by the customer.

Identify performance obligations that are distinct

A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and a promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

Determine the transaction price

The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies.

Allocate the transaction price to distinct performance obligations

The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer. Our contracts may contain multiple performance obligations, for which we account for individual performance obligations separately, if they are distinct. The standalone selling price reflects the price we would charge for a specific piece of equipment or service if it was sold separately in similar circumstances and to similar customers.

Recognize revenue as the performance obligations are satisfied

Revenues from wireless and fiber internet, VOIP services, and video streaming services are recognized ratably as performance obligations are satisfied by transferring control of a promised product or service to a customer. Revenues from equipment sales are recognized when control transfers to the customer, which occurs upon delivery.

Customers are billed in advance for services to be provided in the upcoming month. Once billed, payment from customers is due 30 days from the invoice date. Our agreements with our customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained.

Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

We fulfill obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. There are no contract assets related to performance under the contract. We are contractually entitled to invoice in advance for services to be provided in the future. Accordingly, accounts receivable are recorded when the customer has been billed or the right to consideration is unconditional. We recognize deferred revenue when consideration has been billed or received in advance of our satisfaction of our performance obligation(s).

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).

Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective at a reasonable level of assurance as of December 31, 2024, because of a material weakness in our internal control over financial reporting relating to non-routine transactions which lead to the correction of errors with respect to the (a) application of complex technical accounting standards related to the presentation and measurement of certain equity and liability instruments from the re-domestication and (b) initial and subsequent measurement of redeemable noncontrolling interest, certain acquired assets and deferred tax liabilities assumed in the acquisition of a controlling interest in Amplex and the consolidation of smaller leasing entities for which a variable interest did not exist.

The Company's management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud due to inherent limitations of internal controls. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

While the Company believes that its efforts for remediation, once implemented, will improve the effectiveness of its internal control over financial reporting, these remediation efforts have been ongoing and will require more time to operate for management to be able to conclude that the design is effective to remediate the material weakness identified. The Company may conclude that additional measures will be necessary to remediate the material weakness in its internal control over financial reporting, which may necessitate additional evaluation and implementation time.

Changes in Internal Control Over Financial Reporting

In connection with the weaknesses noted above management is in the process of establishing and is refining its internal procedures and controls to ensure the accounting around future complex transactions are thoroughly reviewed with external consultants specializing in the specific transactions identified.

On June 15, 2024, the Company completed the acquisition of Amplex (Refer to Note 3 – Business Combination in our unaudited condensed consolidated financial statements for further information on the Amplex acquisition). In accordance with the general guidance issued by the staff of the SEC, Amplex will be excluded from the scope of management’s report on internal control over financial reporting for the year ending March 31, 2025. As part of the ongoing integration of Amplex, we are in the process of incorporating the controls and related procedures.

In connection with the acquisition, we have performed additional analyses and other procedures to enable management to conclude that our condensed consolidated financial statements included in this report fairly, in all material respects, our financial condition and results of operations as of and for the three and nine months ended December 31, 2024.

Other than as described above, during the most recent fiscal quarter, there has been no change in the Company's internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

In addition to the Risk Factor below and the other information set forth in this Quarterly Report on Form 10-Q, especially in the section entitled “PART I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward Looking Statements,” you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024, which could materially affect our business, financial condition or future results of operations. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Weak economic conditions may have a negative impact on Amplex.

Weak economic conditions may have a negative impact on Amplex. A substantial portion of the Amplex revenue comes from customers whose spending patterns may be affected by prevailing economic conditions. Weak economic conditions in the United States affect demand for Amplex products and services and have a negative impact on results of operations. For example, weak economic conditions will likely impact Amplex customers’ discretionary spending and as a result, they may reduce the level of services to which they subscribe or may discontinue subscribing to one or more of the Amplex services altogether. This risk may be increased by the expanded availability of free or lower cost competitive services, such as certain streaming services, or substitute services for broadband and voice services, such as wireless and public Wi-Fi networks.

Amplex is subject to various federal, state and local laws and regulations.

Amplex is subject to various federal, state and local laws and regulations. In particular, the Communications Act of 1934, as amended (the “Communications Act”) and Federal Communications Commission (“FCC”) regulations and policies affect significant aspects of Amplex. Federal agencies are considering adopting new regulations for communications services, including broadband. States and localities are also increasingly proposing new regulations impacting communications services, including broader regulation of broadband networks. Any of these regulations could significantly affect the business, legal and compliance costs of Amplex. In addition, United States regulators and courts could adopt new interpretations of existing competition or antitrust laws or enact new competition or antitrust laws or regulatory tools that could negatively impact Amplex. Any future legislative, judicial, regulatory or administrative actions may adversely impact the Amplex business by increasing Amplex costs, increasing competition, or imposing additional restrictions on Amplex, some of which may be significant and/or limiting the ability of Amplex to offer services in a manner that would maximize its revenue potential.

Legislative and regulatory changes have in the past, and could in the future, include, for example, the reclassification of Internet services as regulated telecommunications services or other utility-style regulation of Internet services; restrictions on how Amplex manages its Internet access services and networks; the adoption of new customer service or service quality requirements for Amplex Internet access services; the adoption of new privacy restrictions on the collection, use and disclosure of certain customer information by Amplex; new data security and cybersecurity mandates that could result in additional network and information security and cyber incident reporting requirements for Amplex; new restraints on the discretion of Amplex over programming decisions; new restrictions on the rates Amplex charges to consumers for one or more of the services or equipment options offered by Amplex; and increases in government-administered broadband subsidies to rural areas that could result in subsidized overbuilding of Amplex facilities.

The broadband services of Amplex are subject to a number of regulations and commitments. The FCC frequently considers imposing new broadband-related regulations. States and localities also periodically consider new broadband-related regulations, including those regarding broadband affordability. New broadband regulations, if adopted, may have adverse effects on Amplex. Amplex may also become subject to additional broadband-related commitments as a condition of receiving federal or state broadband funding. The Company is unable to predict the outcome or effects of any of these potential actions or any other legislative or regulatory proposals on Amplex.