10-Q: Old Market Capital Reports Q2 Loss, Cites Control Weaknesses

Old Market Capital Corporation reported a net loss for the quarter ended September 30, 2025, despite significant broadband revenue growth, and disclosed material weaknesses in internal controls.

Summary

• Net loss for the three months ended September 30, 2025, was $0.747 million, compared to a net loss of $0.404 million in the prior year period.
• Net loss for the six months ended September 30, 2025, was $1.467 million, an improvement from a net loss of $3.917 million in the prior year period.
• Total revenue for the three months ended September 30, 2025, increased by 7% to $3.159 million, from $2.958 million in the prior year period.
• Total revenue for the six months ended September 30, 2025, increased by 80% to $6.193 million, from $3.447 million in the prior year period, primarily due to the full-period consolidation of Amplex.
• Operating loss improved to $0.963 million for the three months ended September 30, 2025, from $1.263 million in the prior year period.
• Operating loss improved to $1.949 million for the six months ended September 30, 2025, from $4.834 million in the prior year period.
• The company identified material weaknesses in internal control over financial reporting, including issues with complex accounting standards, measurement of acquired assets, inadequate segregation of duties at the Amplex subsidiary, and limited IT policies.
• As of September 30, 2025, Amplex had approximately 13,400 broadband customers (5,400 fiber subscribers) and over 15,000 fiber passings completed.
• The Board of Directors approved a change in the company's fiscal year end from March 31 to December 31, effective October 1, 2025.

Sentiment

Score: 4

Explanation: While the company shows strong revenue growth in its new core broadband business and an improved six-month net loss, the increase in quarterly net loss and the disclosure of multiple material weaknesses in internal controls are significant concerns. The strategic shift is complete, and the RUS loan provides capital for growth, but execution risks and control deficiencies weigh on the sentiment.

Positives

• Significant revenue growth in the telecommunications segment: Q2 2026 revenue up 7% to $3.159 million; six-month revenue up 80% to $6.193 million, driven by the Amplex acquisition.
• Improved operating loss: Q2 2026 operating loss decreased to $0.963 million from $1.263 million; six-month operating loss decreased to $1.949 million from $4.834 million.
• Net loss for the six months ended September 30, 2025, significantly improved to $1.467 million from $3.917 million in the prior year.
• Successful strategic shift to broadband, with Amplex expanding its customer base (13,400 broadband customers, 5,400 fiber subscribers) and fiber passings (15,000).
• Secured a RUS Loan of up to $21.3 million for broadband infrastructure, with $3.0 million drawn as of September 30, 2025, at a favorable 2% interest rate and a three-year deferral period.
• General and administrative expenses decreased by 21% for the three months and 33% for the six months, primarily due to non-recurring acquisition and restructuring costs from the prior period.

Negatives

• Continued net loss: $0.747 million for the three months ended September 30, 2025, and $1.467 million for the six months ended September 30, 2025.
• Increase in net loss for the three months ended September 30, 2025, to $0.747 million from $0.404 million in the prior year, primarily due to the non-recurrence of gains from discontinued operations.
• Material weaknesses in internal control over financial reporting identified, including issues with complex accounting standards, measurement of noncontrolling interest and acquired assets, inadequate segregation of duties at Amplex, and limited IT policies.
• Increased depreciation and amortization expenses due to the build-out of the fiber network and full consolidation of Amplex.
• Cash and cash equivalents decreased from $24.516 million at March 31, 2025, to $18.940 million at September 30, 2025.

Risks

• Material weaknesses in internal control over financial reporting relating to non-routine transactions, specifically the application of complex technical accounting standards for equity and liability instruments from re-domestication.
• Material weaknesses in internal control over financial reporting relating to the initial and subsequent measurement of redeemable noncontrolling interest, certain acquired assets, and deferred tax liabilities assumed in the Amplex acquisition.
• Material weaknesses in internal control over financial reporting relating to post-business combination accounting for depreciation of assets recorded at fair value.
• Limited formal internal assessment documentation retained over the company's evaluation of the financial reporting process.
• Inadequate segregation of duties and lack of documented review of journal entries and the monthly close process at the Amplex subsidiary.
• Amplex's Chief Executive Officer having the ability to prepare and post journal entries without independent review or approval.
• Limited formally documented IT policies and procedures governing system access, change management, or data security for Amplex's general ledger application, and no formal process for conducting periodic user access reviews at Amplex.
• The company's usage of Net Operating Loss (NOL) carryforwards is subject to annual limitations following greater than 50% ownership changes, in accordance with Section 382 of the U.S. Internal Revenue Code.

Future Outlook

The company continues to pursue additional controlling interests in other companies and sectors. It anticipates funding future capital expenditures for fiber network expansion and potential business acquisitions through cash on hand, debt issuance, common stock, restricted stock units, and warrants. The company expects to complete the remediation of identified material weaknesses in internal control over financial reporting during fiscal 2026. The recently enacted One Big Beautiful Bill Act (OBBBA) is not anticipated to have a material impact on the financial statements.

Management Comments

• "We believe 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."
• "The Company, which is based in Omaha, Nebraska, continues to pursue additional controlling interests in other companies and sectors yet to be determined."
• "Part of our growth strategy, however, is to continuing to make capital expenditures for the purpose of expanding our fiber network, and potentially 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."
• "The Company expects to complete the remediation of the above material weaknesses during fiscal 2026."
• "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."

Industry Context

Old Market Capital Corporation has fully transitioned from a consumer finance company to a holding company focused on the telecommunications sector, specifically rural broadband services through its Amplex subsidiary in Ohio. This strategic pivot aligns with broader industry trends of increasing demand for high-speed internet, particularly fiber, and government initiatives (like the RUS Reconnect Program) to expand broadband access in underserved rural areas. The company's focus on fiber network expansion positions it within a growing segment of the telecom industry, aiming to capitalize on the ongoing digital transformation and connectivity needs.

Corporate Governance

Legal Proceedings

• The lawsuit 'Nicholas Financial, Inc. v. Jeremiah Gross' was settled, with a Final Approval Order entered on May 15, 2024. Gemini Insurance Company made the class action settlement payment on behalf of the Company, which cleared on June 3, 2025. No income or expense was recorded by the Company in relation to this case as of September 30, 2025.
• A cross-claim against American Zurich Insurance Company, American Guarantee and Liability Insurance Company, and Zurich American Insurance Company (collectively, Zurich) was remanded to state court and subsequently stayed pending appeal. Zurich's appeal was dismissed for failure to prosecute on April 25, 2025. A settlement with Zurich regarding insurance coverage was approved on May 22, 2025.

Stakeholder Impact

• Shareholders: Continued net losses and identified material weaknesses in internal controls could negatively impact investor confidence and share price. However, strong revenue growth in the new broadband segment and strategic capital investments offer long-term growth potential.
• Customers (Amplex): Expansion of the fiber network and broadband services indicates improved service offerings and broader reach, potentially leading to increased customer satisfaction and market penetration.
• Employees: The strategic shift and dissolution of former subsidiaries imply significant organizational changes, with a new focus on the growing telecommunications segment.
• Creditors (RUS, Huntington National Bank): The company is in compliance with all financial loan covenants relating to the RUS Loan, indicating sound financial management of its debt obligations.

Next Steps

• File next Annual Report on Form 10-KT for the nine-month period ending December 31, 2025, due to fiscal year end change.
• Continue executing remediation plan to address material weaknesses in internal control over financial reporting, with expected completion during fiscal 2026.
• Continue making capital expenditures for expanding the fiber network.
• Pursue additional controlling interests in other companies and sectors.
• Amplex to continue drawing funds under the RUS Loan Agreement through October 31, 2029, for broadband infrastructure construction.

Key Dates

Recommendation

While Old Market Capital Corporation has successfully executed a significant strategic pivot into the high-growth broadband sector, demonstrated by strong revenue increases from Amplex, the persistent net losses and the newly disclosed material weaknesses in internal controls present considerable near-term challenges and execution risks. The RUS loan provides a solid foundation for fiber expansion, but the company needs to demonstrate sustained profitability and effective remediation of its control deficiencies before a more bullish stance can be justified. Investors should hold and monitor the progress on internal control remediation and the path to profitability in the new business segment.

Keywords

Broadband, Telecommunications, Fiber Internet, Wireless Internet, Amplex, SEC Filing, 10-Q, Financial Results, Internal Controls, Corporate Governance, Strategic Shift, Ohio, Rural Broadband, RUS Loan