OLD MARKET CAPITAL Corp 10-Q for FY2025 Q2
OLD MARKET CAPITAL Corp (OMCC)
About this 10-Q
OLD MARKET CAPITAL Corp filed this 10-Q on November 13, 2024, covering the quarter ended September 30, 2024 (FY2025 Q2).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.96M
- compared with $0 a year earlier
- Net loss
- $458K
- compared with a net loss of $10.49M a year earlier
- Diluted EPS
- -$0.07
- compared with -$1.44 a year earlier
c
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
FOR THE TRANSITION PERIOD FROM _ to _
Commission file number:
(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
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(Zip Code) |
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and 92) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No
As of November 6, 2024, approximately
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OLD MARKET CAPITAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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Part I. |
3 |
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3 |
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Condensed Consolidated Balance Sheets as of September 30, 2024 and March 31, 2024 |
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Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2024 and 2023 |
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Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Shareholders' Equity for the Three and Six Months Ended September 30, 2024 and 2023 |
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2024 and 2023 |
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Notes to the Condensed Consolidated Financial Statements |
8 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
30 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Old Market Capital Corporation
Condensed Consolidated Balance Sheets
(In thousands)
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September 30, 2024 |
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March 31, 2024 |
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(Unaudited) |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Materials and supplies |
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Income taxes receivable |
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Prepaid expenses and other assets |
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Assets of discontinued operations |
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Total current assets |
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Operating lease right-of-use assets |
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Property, plant, and equipment, net |
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Intangible assets, net |
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Goodwill |
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Total assets |
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$ |
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$ |
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Liabilities, redeemable non-controlling interest and shareholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Liabilities of discontinued operations |
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Total current liabilities |
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Deferred income taxes |
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Operating lease liabilities |
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Total liabilities |
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(Note 9) |
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Redeemable non-controlling interest |
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Shareholders’ equity: |
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Preferred stock, |
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Common stock, |
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Treasury stock: |
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Additional paid-in capital |
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Retained earnings |
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Total Old Market Capital Corporation shareholders' equity |
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Noncontrolling interest |
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Total shareholders' equity including noncontrolling interests |
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Total liabilities, redeemable non-controlling interest, and equity |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
3
Old Market Capital Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
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For the Three Months Ended September 30, |
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For the Six Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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Wireless internet services |
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$ |
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$ |
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$ |
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$ |
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Fiber internet services |
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Other revenue |
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Total revenue: |
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Operating expenses |
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Marketing |
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Cost of wireless and fiber internet services |
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Cost of other revenue |
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Plant specific operations |
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Plant nonspecific operations |
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General and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Loss from operations |
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Other income (expense) |
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Interest expense, net |
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Income from cash equivalents |
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Emigration tax expense |
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Loss on dissenting shareholders' liability |
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Gain on sale of assets |
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Other income (expense) |
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Total other income (expense), net |
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Loss before income taxes |
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( |
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( |
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Income tax (expense) benefit |
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Loss from continuing operations |
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( |
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( |
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( |
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Discontinued operations: |
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Income (loss) from discontinued operations, net of taxes |
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( |
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Gain on disposal of assets, net of taxes |
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Gain on sale of finance receivables, net of taxes |
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Total income (loss) from discontinued operations |
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( |
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Net loss |
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( |
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( |
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Less: Net loss attributable to noncontrolling interest |
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( |
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( |
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Less: Net income attributable to redeemable noncontrolling interest |
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Net loss attributable to common shareholders |
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$ |
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$ |
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$ |
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$ |
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Net loss per share attributable to common shareholders from continuing operations: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Net income (loss) per share attributable to common shareholders from discontinued operations: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Net loss per share attributable to common shareholders: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
4
Old Market Capital Corporation
Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Shareholders' Equity
(Unaudited)
(In Thousands)
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Three Months Ended September 30, 2024 |
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Redeemable Non-Controlling Interest |
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Common Stock |
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Treasury Stock |
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Additional Paid-In Capital |
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Retained Earnings |
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Total OMCC Shareholders' Equity |
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Noncontrolling Interest |
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Total Shareholders' Equity Including Noncontrolling Interests |
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Shares |
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Amount |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Repurchase of common stock from dissenting shareholders |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net income (loss) |
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- |
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- |
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- |
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- |
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( |
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( |
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( |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended September 30, 2023 |
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Common Stock |
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Treasury Stock |
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Retained Earnings |
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Total Shareholders' Equity |
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Shares |
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Amount |
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Balance at June 30, 2023 |
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$ |
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$ |
( |
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$ |
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$ |
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Share-based compensation |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
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( |
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Balance at September 30, 2023 |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
5
Old Market Capital Corporation
Condensed Consolidated Statements of Redeemable Non-Controlling Interest and Shareholders' Equity
(Unaudited)
(In Thousands)
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Six Months Ended September 30, 2024 |
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Redeemable Non-Controlling Interest |
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Common Stock |
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Treasury Stock |
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Additional Paid-In Capital |
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Retained Earnings |
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Total OMCC Shareholders' Equity |
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Noncontrolling Interest |
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Total Shareholders' Equity Including Noncontrolling Interests |
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Shares |
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Amount |
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Balance at March 31, 2024 |
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$ |
- |
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$ |
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$ |
( |
) |
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$ |
- |
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$ |
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$ |
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$ |
- |
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$ |
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Issuance of restricted stock awards |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Reclassification of dissenting shares to liability |
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- |
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( |
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( |
) |
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- |
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- |
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( |
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( |
) |
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- |
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( |
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Repurchase of common stock from dissenting shareholders |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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Redomestication from Canada to Delaware and reduction of par value |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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Acquisition of Amplex |
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- |
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- |
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- |
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- |
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- |
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- |
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Purchase of Amplex shares from noncontrolling interests |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Net income (loss) |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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$ |
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Six Months Ended September 30, 2023 |
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||||||||||||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Retained Earnings |
|
|
Total Shareholders' Equity |
|
|||||||
|
|
Shares |
|
Amount |
|
|
|
|
|
|
|
|
|
|
|||||
Balance at March 31, 2023 |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Cumulative effect of adoption of ASU 2016-13, net of tax |
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Share-based compensation |
|
|
- |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Net loss |
|
|
- |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2023 |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
Old Market Capital Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
|
|
For the Six Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Amortization of operating lease right-of-use assets |
|
|
|
|
|
|
||
(Gain) loss on disposal of property, plant, and equipment |
|
|
( |
) |
|
|
|
|
Loss on dissenting shareholders' liability |
|
|
|
|
|
|
||
Principal reduction on operating lease liabilities |
|
|
|
|
|
( |
) |
|
Share-based compensation |
|
|
|
|
|
|
||
Impairment of operating lease right-of-use assets |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
||
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
|
|
Materials and supplies |
|
|
( |
) |
|
|
|
|
Operating right-of-use assets |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable, accrued expenses, and other liabilities |
|
|
|
|
|
( |
) |
|
Income taxes receivable |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
|
|
Cash provided by operating activities from discontinued operations |
|
|
|
|
|
|
||
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Cash paid for acquisition of Amplex |
|
|
( |
) |
|
|
|
|
Payments for property, plant, and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from the disposal of property, plant, and equipment |
|
|
|
|
|
|
||
Net cash provided by investing activities from discontinued operations |
|
|
|
|
|
|
||
Net cash provided by investing activities |
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Repurchase of dissenting shares |
|
|
( |
) |
|
|
|
|
Cash used in financing activities from discontinued operations |
|
|
|
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net increase in cash and cash equivalents |
|
|
|
|
|
|
||
Cash and cash equivalents, at the beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, the end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
||
Supplemental schedule of noncash financing activities: |
|
|
|
|
|
|
||
Purchase of property, plant, and equipment included in accounts payable |
|
$ |
|
|
$ |
|
||
Transfer of finance receivables to repossessed assets |
|
$ |
|
|
$ |
|
||
See accompanying Notes to Condensed Consolidated Financial Statements.
7
Notes to the Condensed Consolidated Financial Statements
Note 1. Organization
Effective as of September 27, 2024, the Company amended its Certificate of Incorporation to change its name from Nicholas Financial, Inc. to Old Market Capital Corporation by filing a Certificate of Amendment to Certificate of Incorporation with the Delaware Secretary of State. Old Market Capital Corporation ("OMCC" and together, with its wholly-owned and majority-owned subsidiaries, the "Company") is a holding company incorporated under the laws of the State of Delaware with
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. NFI was 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. NFI had also offered direct consumer loans and sold consumer finance related products. NFI and NDS are based in Florida, U.S.A.
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 agreed to sell substantially all of the finance receivables and all of the repossessed assets of Old Market Capital Corporation and NFI. In connection with entering into the Purchase Agreement, the Company ceased new loan originations of contracts and direct loans. On April 26, 2024, the transactions contemplated by the Purchase Agreement closed. See Note 12 for additional information.
On June 15, 2024, Old Market Capital Corporation closed upon the acquisition of
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Old Market Capital Corporation and its wholly-owned and majority-owned subsidiaries. In addition, the Company consolidates entities that meet the definition of a variable interest entity ("VIE") for which it is the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly-owned, the third party's holding of the equity interest is presented as noncontrolling interests in the condensed consolidated statements of redeemable noncontrolling interest and shareholders' equity. The portion of net income (loss) attributable to the noncontrolling interests is presented as net loss attributable to noncontrolling interests in the Company's condensed consolidated statements of operations. All intercompany accounts and transactions have been eliminated in consolidation.
8
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"). for interim financial information, with instructions to Form 10-Q pursuant to the Securities Exchange Act of 1934, as amended, and with Article 8 of Regulation S-X thereunder Accordingly, they do not include all of the information and notes to the consolidated financial statements required by U.S. GAAP for complete consolidated financial statements, although the Company believes that the disclosures made are adequate to ensure the information is not misleading. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending March 31, 2025. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2024, as filed with the Securities and Exchange Commission on July 1, 2024.
Use of Estimates
Cash and Cash Equivalents
Short-term highly liquid investments with a maturity date that was 3 months or less at the time of purchase are treated as cash equivalents. Amounts earned from cash equivalents are presented separately in the condensed consolidated statements of operations.
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, the Company determines its allowance by applying a loss-rate method based on an aging schedule using the Company’s historical loss rate. The Company also considers 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. 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.
Property, Plant, and Equipment, net
Property, plant, and equipment is recorded at cost, net of accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred. Additions and improvements that extend the economic useful life of the asset are capitalized and depreciated over the remaining useful lives of the assets. Upon disposal of assets, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized currently in the
9
condensed consolidated statements of operations.
Asset |
|
Estimated Useful Life |
Equipment |
|
|
Furniture and fixtures |
|
|
Leasehold improvements |
|
Lesser of lease term or useful life (generally |
Construction equipment |
|
|
Fiber plant |
|
|
Customer premise equipment |
|
|
Towers |
|
|
Plant in service |
|
Acquisitions, Goodwill and Intangible Assets
Upon acquisition of a company, the Company determines if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained from a business, the assets acquired, and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at their estimated fair values. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.
Certain assumptions, estimates, and judgments are used in determining the fair value of net assets acquired, including goodwill and intangible assets, as well as determining the allocation of goodwill to the reporting units. Accordingly, the Company may obtain the assistance of third-party valuation specialists for the valuation of significant tangible and intangible assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but that are inherently uncertain. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received and is not to exceed one year from the acquisition date. The Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. Contract assets and liabilities are measured and recognized in accordance with ASC 606, Revenue from Contracts with Customers. Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions periodically and records any adjustments to preliminary estimates to goodwill, provided the Company is within the measurement period. If outside of the measurement period, any subsequent adjustments are recorded within the Company’s condensed consolidated statements of operations.
Intangibles with definite lives are amortized on a straight-line basis over their useful lives, which generally range from
Goodwill and intangibles with indefinite lives are not amortized. The Company is required to test goodwill and indefinite lived intangible assets for impairment on an annual basis, or more often if indicators of potential impairment exist due to triggering events, by determining if the carrying value of the Company's goodwill exceeds the estimated fair value of said goodwill. Indicators that could trigger an interim impairment test include, but are not limited to, underperformance relative to projected future operating results, significant negative industry or economic trends, an adverse change in regulatory environment, or pending adverse litigation.
In evaluating goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of the Company's goodwill is less than its carrying value as of the assessment date. If no events, facts, or circumstances are identified during the qualitative assessment, the Company does not need to perform a quantitative impairment assessment. If the Company concludes that it is more likely than not that the fair value of the goodwill is less than its carrying value, then the Company will perform a quantitative impairment test by comparing the fair value of the goodwill with its carrying amount. If the carrying amount of goodwill
10
exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill. During the periods presented, the Company did not have any impairment charges.
Assets Held-for-Sale and Discontinued Operations
The Company classifies assets as held-for-sale if all held-for-sale criteria are met pursuant to Accounting Standards Codification ("ASC") 360-10, Property, Plant and Equipment. Criteria include management's commitment to sell the disposal group in its present condition and the sale being deemed probable of being completed within one year. Assets classified as held-for-sale are not depreciated and are measured at the lower of their carrying amount or fair value less cost to sell. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held-for-sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the initial carrying value of the disposal group.
When the Company has sold, or classified as held for sale, a business component that represents a strategic shift with significant effect on the Company's operations and financial results, it classifies that business component as discontinued operations and retrospectively presents discontinued operations for the comparable periods. The post-tax income, or loss, of discontinued operations are shown as a single line on the face of the statement of operations. The disposal of the discontinued operation would also result in a gain or loss upon final disposal.
As a result of the sale of finance receivables and repossessed assets to Westlake Financial, the accompanying condensed consolidated financial statements reflect the activity related to the sale of the assets of the consumer finance segment as discontinued operations. The Company determined that the finance receivables met the held-for-sale criteria as of November 1, 2023 and the consumer finance segment met the discontinued operations criteria during the six months ended September 30, 2024. The sale of the finance receivables and repossessed assets of the consumer finance segment was completed on April 26, 2024. See Note 12 for additional information regarding the activities of discontinued operations.
Consolidated Variable Interest Entities
VIEs are entities in which (1) equity investors lack the characteristics of a controlling financial interest or (2) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. In accordance with ASC 810, Consolidations (“ASC 810”), the Company consolidates a VIE when it is determined it is the primary beneficiary of the VIE. The Company performs an evaluation as to whether it is the primary beneficiary of a VIE upon its initial involvement with the VIE using the following criteria: (1) the Company has the power to make decisions that most significantly affect the economic performance of the VIE and (2) the Company has the obligation to absorb the losses or the right to receive benefits, that in either case, could potentially be significant to the VIE.
In accordance with ASC 810, the Red Bug Entities are VIEs as they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support. The Company consolidates the Red Bug Entities as it is considered the primary beneficiary as it has the power to direct the activities of the Red Bug Entities that most significantly impact the entity's economic performance and has the obligation to absorb the losses or benefits of their financial performance.
As of September 30, 2024, the Company has consolidated approximately $
Leases
The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use ("ROU") assets, and the corresponding lease liabilities are included in operating lease liabilities, current and operating lease liabilities in the Company's balance sheets. ROU assets represent the Company's right to use an underlying asset, and lease liabilities represent the Company's obligation for lease payments in exchange for the ability to use the asset for the duration of the lease term.
11
ROU assets and lease liabilities are recognized at commencement date or acquisition date and determined using the present value of the future minimum lease payments over the lease term. The Company uses a discount rate based on a benchmark approach to derive an appropriate incremental borrowing rate to discount remaining lease payments. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived imputed rates for lease term lengths ranging
The Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease component for all asset classes when the payments are fixed. As such, variable lease payments, including those not dependent on an index or rate, such as real estate taxes, common area maintenance, and other costs that are subject to fluctuation from period to period are not included in lease measurement.
Upon the acquisition of Amplex on June 15, 2024, the Company recorded lease liabilities and corresponding right of use assets of approximately $
Investments in Debt Securities
Old Market Capital Corporation and Amplex entered into a Term Loan Agreement (the "Term Loan Agreement") entered into on February 15, 2024, as amended by the First Amendment dated April 26, 2024 and later amended by the Second Amendment dated June 15, 2024, pursuant to which Old Market Capital Corporation agreed to make one or more term loan advances ("Term Loan Advances" or "Term Loans") to Amplex in an aggregate principal amount not to exceed $
Per the amended terms of the Term Loan Agreement, at the Transaction Closing Date, the outstanding debt from the Term Loan Advances shall automatically be converted into the number of common shares of Amplex determined by dividing the outstanding debt from the Term Loan Advances by the share purchase price (the "Converted Shares"). The Term Loans were converted upon the Transaction Closing Date as of June 15, 2024 (a total of approximately $
As of March 31, 2024, the Term Loan Advance receivable was accounted for as an available-for-sale debt security and fair valued using "Level 3" inputs, which consist of unobservable inputs and reflect management's estimates of assumptions that market participants would use in pricing the asset. The Company's Term Loan Advances were determined to be available-for-sale debt securities under ASC 320, Investments - Debt Securities. The Company estimated the fair value of the Term Loan Advances as of March 31, 2024 using a probability-weighted scenario-based model, which uses as inputs the estimated fair value of the Borrower's common stock, the estimated volatility of the Borrower's common stock, the time to expiration of the Term Loan Advances, the discount rate, the stated interest rate compared to the current market rate, and the risk-free interest rate for a period that approximates the time to expiration. The estimated fair value of the Borrower's common stock was based on the estimated closing price of the Amplex shares to the Company at the time of issuance. The estimated volatility of the Borrower's common stock was based on the observed volatility range of comparable publicly traded companies. The time to expiration was based on the probability of conversion prior to the contractual maturity date. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of measurement for time periods approximately equal to the time to expiration.
12
Between April 1, 2024 and June 1, 2024 the Company made Term Loan Advances to Amplex in the aggregate amount of $
Dissenting Shares & Domestication
On November 22, 2023, OMCC, formerly known as Nicholas Financial, Inc., filed the initial Form S-4 related to the re-domestication (continuation) and Loan Portfolio Sale. Shareholders had the right to dissent to the continuation and the Loan Portfolio Sale under Section 309 of the British Columbia Business Corporations Act (“BCBCA”) (“Dissent Right”). Dissenting shareholders had the right to be paid the fair value of their shares (“Dissenting Shares”) under Section 245 of the BCBCA. Fair value was determined as of the close of business on the day before the Loan Portfolio Sale was approved by shareholders.
On April 15, 2024 (“Approval Date”), the stockholders of OMCC approved the re-domestication of the Company from Canada to Delaware and the Loan Portfolio Sale. There were
On September 5, 2024, the Company settled in cash with the dissenting shareholders to repurchase
The following table summarizes the change in the Dissenting Shares liability measured at fair value, on a recurring basis, for which Level 3 inputs have been used to determine fair value:
Balance of Dissenting Shareholders' Liability as of April 1, 2024 |
|
$ |
|
|
Initial value upon re-domestication |
|
|
|
|
Change in fair value |
|
|
|
|
Balance of Dissenting Shareholders' Liability as of June 30, 2024 |
|
|
|
|
Change in fair value |
|
|
|
|
Cash settlement of dissenting shareholders' liability |
|
|
( |
) |
Balance of Dissenting Shareholders' Liability as of September 30, 2024 |
|
$ |
|
Fair Value Measurements
The Company applies ASC 820, Fair Value Measurement ("ASC 820"), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the
13
assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Certain assets and liabilities of the Company 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. The Company's 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 the Company's 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.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:
Level 1 - Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 - Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
The following tables presents information about the Company’s financial instruments measured at fair value, on a recurring basis, consistent with the fair value hierarchy provisions:
|
|
Fair Value Measurement Using |
|
|
|
|
|
|
|
|||||||||||
Description |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|
Carrying Value |
|
|||||
Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Term loan advance to Amplex: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
September 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
14
The following table summarizes the changes in financial assets measured at fair value, on a recurring basis, for which Level 3 inputs have been used to determine fair value:
Balance of Term Loan Advances as of April 1, 2024 |
|
$ |
|
|
Issued |
|
|
|
|
Change in fair value |
|
|
|
|
Interest accrued |
|
|
|
|
Conversion |
|
|
( |
) |
Balance of Term Loan Advances as of September 30, 2024 |
|
$ |
|
Balance of Dissenting Shareholders' Liability as of April 1, 2024 |
|
$ |
|
|
Initial value upon re-domestication |
|
|
|
|
Change in fair value |
|
|
|
|
Balance of Dissenting Shareholders' Liability as of June 30, 2024 |
|
|
|
|
Change in fair value |
|
|
|
|
Cash settlement of dissenting shareholders' liability |
|
|
( |
) |
Balance of Dissenting Shareholders' Liability as of September 30, 2024 |
|
$ |
|
Discontinued operations assets measured on a non-recurring basis using Level 3 inputs were $
Loss Contingencies
Certain conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies, the Company’s legal counsel evaluates the perceived merits of any legal proceedings, disputes, or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s condensed consolidated financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases along with operating loss and tax credit carryforwards, if any. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date.
As part of the recent acquisition of Amplex by Old Market Capital Corporation, goodwill was recorded on the books. The goodwill recorded on the books as a result of the acquisition of Amplex through a stock purchase does not have favorable tax treatment. It will not be amortized or deducted for tax purposes, and the tax basis of the acquired assets remains unchanged. This results in a permanent book-tax difference when the goodwill is recognized for financial reporting purposes but not for tax purposes.
15
The Company recognizes tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from any such position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. It is the Company’s policy to recognize interest and penalties accrued on any uncertain tax benefits as a component of income tax expense. There were
The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and Canada. The effect on deferred taxes of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.
Revenue Recognition
The Company generates revenue primarily from the following sources:
In accordance with ASC 606 “Revenue Recognition”, the Company recognizes revenue from contracts with customers using a five-step model, which is described below:
Identify the customer contract
A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability is probable. Specifically, the Company obtains written/electronic signatures on contracts and purchase orders, if said purchase orders are issued in the normal course of business by the customer.
16
Identify performance obligations that are distinct
A performance obligation is a promise by the Company 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 company’s 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 the Company expects 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. The Company’s contracts may contain multiple performance obligations, for which the Company accounts for individual performance obligations separately, if they are distinct. The standalone selling price reflects the price the Company 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. The Company’s agreements with its customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained.
Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company fulfills 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. The Company is 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. The Company recognizes deferred revenue when consideration has been billed or received in advance of the Company’s satisfaction of its performance obligation(s).
In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the Company’s contracts, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet one of the exemptions defined in ASC 606-10-50-14 through 606-10-50-14A, i.e., performance obligation is part of a contract that has an original expected duration of one year or less.
Segment Reporting
The Company reports operating segments in accordance with ASC 280, Segment Reporting (“ASC 280”). Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by their chief operating decision maker in deciding how to allocate resources and assesses performance. ASC 280 requires that a public enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the way operating segments were determined and other items.
17
The Company has
Redeemable Noncontrolling Interest
The Company classifies noncontrolling interests with redemption features that are not solely within the control of the Company within temporary equity on the Company’s condensed consolidated balance sheets in accordance with ASC 480-10-S99-3A, SEC Staff Announcement: Classification and Measurement of Redeemable Securities (“ASC 480-10-S99-3A”). The noncontrolling interest was recorded outside of shareholders’ equity because the noncontrolling interest provided the holder with put rights which allows the holder to compel the Company to purchase Amplex common stock at $
Reclassifications
During the six months ended September 30, 2024, the Company determined that the consumer finance company segment met the criteria for discontinued operations classification. As a result, the Company made reclassifications to include certain prior year amounts within discontinued operations and assets held for sale in the Company's condensed consolidated balance sheets, statements of operations, and statements of cash flows. See Note 12 Discontinued Operations for further details.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" (“ASU 2023-07”). This ASU requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker (“CODM”) and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and contains other disclosure requirements. This authoritative guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect of this new guidance and does not expect this standard to have a material impact on the Company's condensed consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). This ASU requires that reporting entities disclose specific categories in the effective tax rate reconciliation as well as information about income taxes paid. The authoritative guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the effect of this new guidance and does not expect this standard to have a material impact on the Company’s condensed consolidated financial statements.
18
Note 3. Business Combination
On
In conjunction with the closing of the Amplex Acquisition, the Company converted the outstanding principal and accrued interest of approximately $
In accordance with ASC 805, Business Combinations, the Amplex Acquisition was accounted for using the acquisition method of accounting, which requires, among other things, the assets acquired and the liabilities assumed be recognized at their fair values as of the acquisition date. Goodwill is the excess purchase price over the preliminary estimated fair value of net assets acquired and liabilities assumed in the Amplex Acquisition. The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available. The primary areas that remain preliminary relate to the fair values of property, plant, and equipment, goodwill and intangible assets.
The fair value of the subscriber relationships were determined using the multi-period excess earnings method (“MPEEM”) under the income approach. This method reflects the present value of the operating cash flows generated by this asset after taking into account the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital. The Company utilized the relief-from-royalty method, a form of both the market and income approach, to determine the fair value of the trade names. Under this method, it is assumed that if the Company did not own the intangible asset, it would be willing to pay a royalty for its use. Internally developed software was valued using a cost approach, specifically the cost to re-create method. The cost to re-create method considers the cost required to recreate an identical asset considering current prices of direct and indirect costs. These costs are then adjusted for the developers’ profit, which reflects the expected return on the direct and indirect costs, and opportunity cost, which represents the forgone returns during the period when the asset is being developed. The Citizens Broadband Radio Service FCC license ("CBRS FCC license") was valued using a cost approach, specifically, the cost incurred by the business in acquiring the CBRS FCC license. In determining the fair value of the property, plant, and equipment, the Company used a combination of various valuation techniques including the income approach, the cost approach, and the market approach.
The Company's preliminary allocation of the purchase price to the assets acquired, liabilities assumed, and noncontrolling interest recognized and redeemable as of the Closing Date were as follows:
19
(In thousands) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Accounts receivable |
|
|
|
|
Materials and supplies |
|
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|
|
Operating lease right-of-use |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
Property, plant, and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Goodwill |
|
|
|
|
Total assets acquired |
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|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
Accrued expenses and other liabilities |
|
|
|
|
Lease liabilities |
|
|
|
|
Deferred income taxes |
|
|
|
|
Deferred revenue |
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
|
|
|
|
Total fair value of net assets acquired |
|
|
|
|
Less: redeemable noncontrolling interest |
|
|
( |
) |
Less: noncontrolling interest |
|
|
( |
) |
Total purchase price |
|
$ |
|
|
The Company incurred $
The following is the net impact of the Amplex Acquisition on the Company's condensed consolidated statements of operations since the Closing Date:
|
|
For the Three Months Ended September 30, 2024 |
|
|
For the Six Months Ended September 30, 2024 |
|
||
|
|
(In thousands) |
|
|||||
Total revenue |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Income (loss) from continuing operations |
|
$ |
|
|
$ |
( |
) |
|
The following table represents the supplemental consolidated financial results of the Company on an unaudited pro forma basis, as if the acquisition had been consummated on April 1, 2023.
20
|
|
(In thousands) |
|
|||||||||||||
|
|
For the Three Months Ended September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
|
|
2024 (Actual) |
|
|
2023 (Pro Forma) |
|
|
2024 (Pro Forma) |
|
|
2023 (Pro Forma) |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net (loss) income from continuing operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income (loss) from discontinued operations |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic (loss) earnings per share from continuing operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Diluted (loss) earnings per share from continuing operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Basic earnings (loss) per share from discontinued operations |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Diluted earnings (loss) per share from discontinued operations |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Basic (loss) earnings per share |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Diluted (loss) income per share |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
The following table represents the supplemental schedule of noncash investing and financing activities:
|
|
(In thousands) |
|
|||||
|
|
For the Six Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Supplemental schedule of noncash investing and financing activities |
|
|
|
|
|
|
||
Fair value of Amplex assets acquired |
|
$ |
|
|
$ |
|
||
Less: redeemable noncontrolling interest |
|
|
( |
) |
|
|
|
|
Less: noncontrolling interest |
|
|
( |
) |
|
|
|
|
Less: cash paid for Amplex common stock |
|
|
( |
) |
|
|
|
|
Amplex liabilities assumed |
|
$ |
|
|
$ |
|
||
Note 4. Revenue and Deferred Revenue
Revenue
The Company sells its goods and services to customers primarily under contracts with stated terms of 12 months. The Company’s standard terms and conditions state a penalty for early termination of wireless internet service contracts; however, the Company normally waives this penalty. Disaggregated revenues are presented in the accompanying statements of operations.
Contract Liability
The Company recorded a current contract liability balance of $
Note 5. Earnings Per Share
The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. Earnings per share is calculated using the two-class method, as such awards are more dilutive under this method than the treasury stock method. Ordinarily, basic earnings per share is calculated by dividing net income
21
allocated to common shareholders by the weighted average number of common shares outstanding during the period, which excludes the participating securities. The Company's participating securities are non-vested restricted shares which are not required to share losses, and accordingly, are not allocated losses in periods of net loss. Dilutive earnings per share are calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period which includes the dilutive effect of additional potential common shares from stock compensation awards. In a period of loss, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. Therefore, in periods when a loss is reported, basic and dilutive loss per share are the same. In accordance with ASC 480-10-S99-3A, as the Company's redeemable noncontrolling interest is redeemable at an amount other than fair value, the Company has made an accounting policy election to reflect the entire adjustment to the carrying value as a deemed dividend. For the three and six months ended September 30, 2024, the change in the redemption amount was deemed immaterial and no adjustment was made to the numerator for calculating earnings per share. For the three and six months ended September 30, 2024 and 2023, potentially dilutive securities that were not included in the diluted net loss per share calculation because they would be anti-dilutive comprise
Loss and income per share has been computed based on the following weighted average number of common shares outstanding:
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
|
(In thousands, except per share amounts) |
|
|||||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss from continuing operations attributable to common shareholders |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net income (loss) from discontinued operations attributable to common shareholders |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net loss per consolidated statements of income attributable to common shareholders |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for basic loss per share - weighted-average shares outstanding |
|
|
|
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|
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|
|
|
|
|
||||
Dilutive effect of stock options |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for diluted earnings per share from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share loss from continuing operations attributable to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share income (loss) from discontinued operations attributable to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Diluted |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per share loss income available to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Note 6. Property, Plant, and Equipment, net
22
Property, plant, and equipment consist of the following:
|
|
(In thousands) |
|
|||||
|
|
September 30, 2024 |
|
|
March 31, 2024 |
|
||
|
|
|
|
|
|
|
||
Equipment |
|
$ |
|
|
$ |
|
||
Construction equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Fiber plant |
|
|
|
|
|
|
||
Customer premise equipment |
|
|
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|
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|
||
Towers |
|
|
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|
||
Land |
|
|
|
|
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|
||
Plant in service |
|
|
|
|
|
|
||
Total, property, plant, and equipment in service |
|
|
|
|
|
|
||
Property, plant, and equipment under construction |
|
|
|
|
|
|
||
Total property, plant, and equipment |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property, plant, and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
Note 7. Goodwill and Intangible Assets
The acquired goodwill represents the value of combining operations of Amplex and the Company.
The change in the carrying amount of goodwill for the six months ended September 30, 2024 was as follows:
(In thousands) |
Gross Carrying Amount |
|
|
Additions |
|
|
Impairment |
|
|
Net Book Value |
|
||||
Goodwill |
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The changes in intangible assets for the six months ended September 30, 2024 consists of the following:
23
(In thousands) |
Weighted Average Remaining Amortization Period |
|
|
Gross Carrying Amount |
|
|
Additions |
|
|
Impairment |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
||||||
Definite lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subscriber relationships |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Trade name |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Internally developed software |
|
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|
|
|
|
|
|
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|
|
( |
) |
|
|
|
|||||
|
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|
|
|
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|
|
( |
) |
|
|
|
|||||
Indefinite lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CBRS FCC license |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
||||||
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Amortization expense totaled $
As of September 30, 2024, the future expected amortization expense for intangible assets is as follows:
(In thousands) |
|
|
|
Remainder of FY 2025 |
$ |
|
|
FY 2026 |
|
|
|
FY 2027 |
|
|
|
FY 2028 |
|
|
|
FY 2029 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
|
Note 8. Leases
The Company's operating leases for its equipment and specialized spaces for company equipment have terms expiring at various dates through June 2033. Certain lease arrangements include renewal options and escalation clauses.
Operating lease assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. As most of the Company's leases do not provide an implicit rate, the Company estimates its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments. Lease expense related to the net present value of payments is recognized on a straight-line basis over the lease term.
The key components of the Company's operating leases were as follows:
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Operating lease expense |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
Short-term lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
24
Right-of-use assets and lease liabilities for operating leases were recorded in the condensed consolidated balance sheets as follows:
|
|
(In thousands) |
|
|||||
|
|
September 30, 2024 |
|
|
March 31, 2024 |
|
||
Operating leases: |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
$ |
|
|
$ |
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
|
||
The weighted-average remaining lease term for operating leases was
Future minimum lease payments under non-cancelable operating leases as of September 30, 2024, are as follows:
(In thousands) |
|
|
|
|
Remainder of FY 2025 |
|
$ |
|
|
FY 2026 |
|
|
||
FY 2027 |
|
|
||
FY 2028 |
|
|
||
FY 2029 |
|
|
||
Thereafter |
|
|
||
Total minimum lease payments |
|
|
|
|
Less: effects of discounting |
|
|
( |
) |
Present value of future minimum lease payments |
|
$ |
|
|
The amounts recorded for operating lease expenses include short-term leases, which are immaterial. The Company has recorded $
Note 9. Commitments and Contingencies
The Company is involved in certain claims and legal proceedings in the normal course of business of which one, if decided adversely to the Company, would, in the opinion of management, have a material adverse effect on the Company’s financial condition or results of operations.
Claims and legal proceedings relating to discontinued operations
Specifically, the Company has been sued together with several other defendants, in a lawsuit styled: Nicholas Financial, Inc. v. Jeremiah Gross, No. 21CY-CV02148-01, 7th Judicial Circuit, Clay County, Missouri. On March 9, 2021 the Company filed suit against Jeremiah Gross for a deficiency balance owed the Company following the 2018 surrender and sale of his motor vehicle which secured a loan from the Company. On April 22, 2021 a default judgment for $
25
notices. The Court also denied Nicholas Financial, Inc.’s motion for summary judgment as to its claim for a deficiency against Gross. The remaining claim related to post sale notices sent to Missouri customers. The parties, including the Company’s insurer Gemini, settled the case and the Court entered a Final Approval Order on May 15, 2024 which found the Agreement to have been entered into in good faith and approving the Company’s assignment to the Class of the Company’s claims against certain insurers, brokers, and agents. Further, the Court approved the settlement as fair, reasonable, and adequate as to, and in the best interests of, each of the Parties and the Settlement Class members and in full compliance with all requirements of the laws of Missouri, the United States Constitution (including the Due Process Clause), and any other applicable law. The Court directed the parties to the Lawsuit to implement and consummate the Agreement pursuant to its terms and provisions. Pursuant to the terms of the Agreement, the Court entered a Final Judgment against the Company in favor of the Class. In the Final Judgment, the Court held that other than the funds to be paid by Gemini Insurance Company on behalf of the Company, the Company had no obligation to satisfy the judgment, and that any remaining amount may only be satisfied from the Company’s Insurers and Insurance Agents other than Gemini Insurance Company.
On May 15, 2024, Gross filed on behalf of the Class, as assignee of the Company, a Cross-Claim in the underlying lawsuit against American Zurich Insurance Company (“AZIC”), American Guarantee and Liability Insurance Company (“AGLIC”), and Zurich American Insurance Company (“ZAIC” and collectively with AZIC and AGLIC, “Zurich”), for breach of contract, breach of the duty to defend, and bad faith failure to defend or settle (“Cross-Claim”). On June 14, 2024, Zurich filed a Motion to Amend the Final Judgment and a Notice of Removal of the Cross-Claim, seeking to remove the Cross-Claim to federal court in the Western District of Missouri. In its Notice of Removal, Zurich acknowledged that the Company is no longer a proper party to the Lawsuit “because all the claims against it are resolved by the Final Judgment.” On June 24, 2024, Zurich filed a Notice of Appeal of the Final Judgment.
Claims and legal proceedings relating to continuing operations
Armstrong Teasdale LLP reported the following updates based on recent events and the information available to it as of November 1, 2024:
On August 14, 2024, the federal court in the Western District of Missouri granted Gross’s (Class Representative’s) motion to remand the Cross-Claim against Zurich, which means the action was reinstated that day in the state Circuit Court. Shortly after the remand, on September 5, 2024, the state court granted a joint motion by Gross and Zurich to stay the state court action pending the state Appeals Court’s disposition of Zurich’s appeal, which is still undecided.
Because of the pending motion to amend and the pending appeal, the Final Judgment is not yet final, which means the funding deadline for Gemini Insurance Company’s payment to the Class on behalf of the Company has not yet been triggered. The stay entered by the state court will likely not affect the finality of the Final Judgment.
Armstrong Teasdale LLP has been informed that Gross and Zurich participated in a mediation on October 9, and that they reached a global settlement of their disputes; however, a settlement agreement is apparently still being prepared, and the reported settlement is not yet final.
It is likely that Gemini Insurance Company’s funding deadline will occur 14 business days following the later of: November 22, 2024 (which is based on a statutory determination of automatic judgment finality, assuming no other appeals of the Final Approval Order or Final Judgment have been filed); or the date of the Court of Appeals’ disposition of the existing appeal or the effective date of any settlement agreement between Gross and Zurich, whichever of those two happens first (assuming the settlement between Gross and Zurich resolves the pending appeal and forecloses Zurich from pursuing any additional appeals).
However, Armstrong Teasdale LLP advised that it is still waiting to review the final written terms of the reported settlement between Gross and Zurich, and that it must review those terms in order to be in a position to provide the Company with a higher level of certainty regarding the date by which Gemini Insurance Company will be required to fund the Class payment (which will satisfy the Company’s remaining obligation pursuant to the Class Settlement Agreement).
26
Armstrong Teasdale advised that based on the information currently available, it still expects the Final Judgment to become final eventually, either as it is, or in a slightly modified version.
Note 10. Stock Plans
In May 2019, the Company’s Board of Directors (“Board”) authorized a stock repurchase program allowing for the repurchase of up to $
The timing and actual number of shares will depend on a variety of factors, including stock price, corporate and regulatory requirements and other market and economic conditions. The Company’s stock repurchase program may be suspended or discontinued at any time.
In August 2019, the Company’s Board authorized an additional repurchase of up to $
On September 5, 2024, the Company settled in cash with the dissenting shareholders to repurchase the
The table below summarizes treasury share transactions for the Company:
|
|
Three Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
||||
Treasury shares at the beginning of period |
|
|
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
||
Treasury shares purchased |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Treasury shares at the end of period |
|
|
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
||
|
|
Six Months Ended September 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Number of Shares |
|
|
Amount |
|
|
Number of Shares |
|
|
Amount |
|
||||
Treasury shares at the beginning of period |
|
|
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
||
Treasury shares purchased |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Treasury shares at the end of period |
|
|
|
|
$ |
( |
) |
|
|
|
|
$ |
( |
) |
||
Note 11. Income Taxes
The provision (benefit) for income taxes reflects an effective U.S. tax rate, which differs from the corporate tax rate for the following reasons:
The Company recorded an income tax expense of approximately $
27
As of March 31, 2024, the Company had federal and state net operating losses ("NOL") of approximately $
The Company’s effective tax rate for the six months ended September 30, 2024 and 2023, was
As a result of the sale of finance receivables and repossessed assets to Westlake Financial, the Company also reported discontinued operations for the historical Nicholas Financial entity.
Note 12. Discontinued Operations
On November 13, 2023, the Company entered into the Purchase Agreement with Westlake Financial, pursuant to which the Company agreed to sell substantially all of its finance receivables and all of its repossessed assets. In connection with the entering into the Purchase Agreement, the Company ceased new loan originations of contracts and direct loans. On April 26, 2024, the transactions contemplated by the Purchase Agreement closed with an aggregate purchase price of $
Subsequent to closing, the Company and Westlake Financial determined that Westlake Financial overpaid the Company $
On July 25, 2024, the arrangement between the Company and Westlake regarding a reconciliation of the initial payment to Nicholas Financial, escrow, and contingent consideration was settled, which resulted in the Company paying Westlake Financial $
The following depicts the results of operations for the discontinued operations of the Company for the three and six months ended September 30, 2024 and 2023:
28
|
|
For the Three Months Ended September 30, |
|
|
For the Six Months Ended September 30, |
|
||||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and fee income on finance receivables |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fair value and other adjustments, net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total other expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on disposal of assets, net of taxes |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Gain on sale of finance receivables, net of taxes |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before income taxes |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Income tax benefit |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Net income (loss) from discontinued operations, net of taxes |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Note 13. Subsequent Events
The Loan 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 restrict additional advances as well as accelerate all amounts outstanding under the Loan.
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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:
30
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 six months ended September 30, 2024, may not be indicative of our future results.
Overview
Old Market Capital Corporation ("OMCC") is a holding company incorporated under the laws of the State of Delaware with two wholly owned subsidiaries, Nicholas Data Services, Inc. ("NDS") and Nicholas Financial, Inc. ("NFI"). 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. NFI was 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. NFI had also offered direct consumer loans and sold consumer finance related products. NFI 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. The Company intends to explore strategic alternatives for the use of the net proceeds of the asset sale.
On June 15, 2024, the Company closed a share purchase agreement to acquire 51% of the issued and outstanding common shares of Amplex Electric, Inc. ("Amplex"). As a result of the acquisition of Amplex, we commenced our broadband services business. Amplex is a provider of broadband internet, voice over internet protocol (VOIP), and video services that serves over 9,100 fixed wireless broadband customers, over 9,000 fiber passings and over 3,500 fiber customers located primarily in Northwest and North Central Ohio.
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%.
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
31
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 September 30, 2024 compared to three months ended September 30, 2023
Revenues of Continuing Operations
For the three months ended September 30, 2024 and 2023, our revenues in dollars and as a percentage of total revenues were as follows:
|
|
For the Three Months Ended September 30, |
|
|
Variance |
|
|||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
% Change |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
||||
Wireless internet services |
|
$ |
1,764 |
|
|
$ |
- |
|
|
$ |
1,764 |
|
|
100 |
% |
Fiber internet services |
|
|
773 |
|
|
|
- |
|
|
|
773 |
|
|
100 |
% |
Other revenue |
|
|
421 |
|
|
|
- |
|
|
|
421 |
|
|
100 |
% |
Total revenue |
|
$ |
2,958 |
|
|
$ |
- |
|
|
$ |
2,958 |
|
|
100 |
% |
Revenue totaled $3.0 million for the three months ended September 30, 2024, compared to $0 for the three months ended September 30, 2023. The increase in revenue for the three months ended September 30, 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 September 30, 2024 and 2023, our expenses in dollars and as a percentage of total expenses were as follows:
|
|
For the Three Months Ended September 30, |
|
|
Variance |
|
|||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
% Change |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
||||
Marketing |
|
$ |
12 |
|
|
$ |
- |
|
|
$ |
12 |
|
|
100 |
% |
Cost of wireless and fiber internet services |
|
|
157 |
|
|
|
- |
|
|
|
157 |
|
|
100 |
% |
Cost of other revenue |
|
|
209 |
|
|
|
- |
|
|
|
209 |
|
|
100 |
% |
Plant specific operations |
|
|
324 |
|
|
|
- |
|
|
|
324 |
|
|
100 |
% |
Plant nonspecific operations |
|
|
227 |
|
|
|
- |
|
|
|
227 |
|
|
100 |
% |
General and administrative |
|
|
2,553 |
|
|
|
1,587 |
|
|
|
966 |
|
|
61 |
% |
Depreciation and amortization |
|
|
501 |
|
|
|
22 |
|
|
|
479 |
|
|
2177 |
% |
Total operating expenses |
|
$ |
3,983 |
|
|
$ |
1,609 |
|
|
$ |
2,374 |
|
|
148 |
% |
32
Cost of Wireless and Fiber Internet Services and Cost of Other Revenue of Continuing Operations
Cost of wireless and fiber internet services totaled $157 thousand for the three months ended September 30, 2024, compared to $0 for the three months ended September 30, 2023. In addition, cost of other revenue totaled $209 thousand for the three months ended September 30, 2024 compared to $0 for the three months ended September 30, 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 September 30, 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 $551 thousand for the three months ended September 30, 2024, compared to $0 for the three months ended September 30, 2023. Due to the Company's acquisition of Amplex, the Company began providing additional services during the three months ended September 30, 2024 that were not provided in prior periods. Therefore, plant specific and nonspecific operations expenses increased for the three months ended September 30, 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 $2.6 million for the three months ended September 30, 2024, compared to $1.6 million three months ended September 30, 2023. The increase in general and administrative expenses for the three months ended September 30, 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 September 30, 2024, compared to $22 thousand three months ended September 30, 2023. The increase in depreciation and amortization expense for the three months ended September 30, 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.
Loss on Dissenting Shareholders' Liability of Continuing Operations
Loss on dissenting shareholders' liability was $0.3 million for the three months ended September 30, 2024 compared to $0 for the three months ended September 30, 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 September 30, 2024, the Company settled the total amount owed to the dissenting shareholders.
Discontinued Operations
Income from discontinued operations was $0.8 million for the three months ended September 30, 2024 compared to a loss of $8.8 million for the three months ended September 30, 2023. The increase in income for three months ended September 30, 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 September 30, 2023.
33
Six months ended September 30, 2024 compared to six months ended September 30, 2023
Revenues of Continuing Operations
For the six months ended September 30, 2024 and 2023, our revenues in dollars and as a percentage of total revenues were as follows:
|
|
For the Six Months Ended September 30, |
|
|
Variance |
|
|||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
% Change |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
||||
Wireless internet services |
|
$ |
2,083 |
|
|
$ |
- |
|
|
$ |
2,083 |
|
|
100 |
% |
Fiber internet services |
|
|
879 |
|
|
|
- |
|
|
|
879 |
|
|
100 |
% |
Other revenue |
|
|
485 |
|
|
|
- |
|
|
|
485 |
|
|
100 |
% |
Total revenue |
|
$ |
3,447 |
|
|
$ |
- |
|
|
$ |
3,447 |
|
|
100 |
% |
Revenue totaled $3.4 million for the six months ended September 30, 2024, compared to $0 for the six months ended September 30, 2023. The increase in revenue for the six months ended September 30, 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 six months ended September 30, 2024 and 2023, our expenses in dollars and as a percentage of total expenses were as follows:
|
|
For the Six Months Ended September 30, |
|
|
Variance |
|
|||||||||
(In thousands) |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
% Change |
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
||||
Marketing |
|
$ |
12 |
|
|
$ |
- |
|
|
$ |
12 |
|
|
100 |
% |
Cost of wireless and fiber internet services |
|
|
187 |
|
|
|
- |
|
|
|
187 |
|
|
100 |
% |
Cost of other revenue |
|
|
245 |
|
|
|
- |
|
|
|
245 |
|
|
100 |
% |
Plant specific operations |
|
|
398 |
|
|
|
- |
|
|
|
398 |
|
|
100 |
% |
Plant nonspecific operations |
|
|
265 |
|
|
|
- |
|
|
|
265 |
|
|
100 |
% |
General and administrative |
|
|
6,317 |
|
|
|
3,065 |
|
|
|
3,252 |
|
|
106 |
% |
Depreciation and amortization |
|
|
595 |
|
|
|
44 |
|
|
|
551 |
|
|
1252 |
% |
Total operating expenses |
|
$ |
8,019 |
|
|
$ |
3,109 |
|
|
$ |
4,910 |
|
|
158 |
% |
Cost of Wireless and Fiber Internet Services and Cost of Other Revenue of Continuing Operations
Cost of wireless and fiber internet services totaled $187 thousand for the six months ended September 30, 2024, compared to $0 for the six months ended September 30, 2023. In addition, cost of other revenue totaled $245 thousand for the six months ended September 30, 2024 compared to $0 for the six months ended September 30, 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 six months ended September 30, 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
34
Plant specific and plant nonspecific operations expenses totaled $663 thousand for the six months ended September 30, 2024, compared to $0 for the six months ended September 30, 2023. Due to the Company's acquisition of Amplex, the Company began providing additional services during the six months ended September 30, 2024 that were not provided in prior periods. Therefore, plant specific and nonspecific operations expenses increased for the six months ended September 30, 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 $6.3 million for the six months ended September 30, 2024, compared to $3.1 million six months ended September 30, 2023. The increase in general and administrative expenses for the six months ended September 30, 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 $595 thousand for the six months ended September 30, 2024, compared to $44 thousand six months ended September 30, 2023. The increase in depreciation and amortization expense for the six months ended September 30, 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 six months ended September 30, 2024 compared to $0 for the six months ended September 30, 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 six months ended September 30, 2024 compared to $0 for the six months ended September 30, 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 September 30, 2024, the Company settled the total amount owed to the dissenting shareholders.
Discontinued Operations
Income from discontinued operations was $0.4 million for the six months ended September 30, 2024 compared to the loss of $5.8 million for the six months ended September 30, 2023. The increase in income for the six months ended September 30, 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 six months ended September 30, 2023.
Liquidity and Capital Resources
During the six months ended September 30, 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
35
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:
|
|
Six Months Ended September 30, |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Net cash (used in) provided by operating activities |
|
$ |
(553 |
) |
|
$ |
1,453 |
|
Net cash provided by investing activities |
|
|
16,675 |
|
|
|
23,994 |
|
Net cash used in financing activities |
|
|
(5,629 |
) |
|
|
(25,250 |
) |
Net cash (used in) provided by operating activities decreased for the six months ended September 30, 2024 when compared to the six months ended September 30, 2023. The decrease in cash (used in) provided by operating activities was primarily due to a decrease in net loss of $5.3 million, noncash charge of $1.1 million for the loss on dissenting shareholders' liability, and net change in operating assets and liabilities of $1.5 million, partially offset by a decrease in cash provided by operating activities from discontinued operations of $10.5 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 six months ended September 30, 2024 compared to the six months ended September 30, 2023. The decrease in net cash provided by investing activities is primarily due to $18.3 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 $14.9 million for the six months ended September 30, 2024 compared to the six months ended September 30, 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 six months ended September 30, 2024 compared to the six months ended September 30, 2023. The decrease was primarily due to repayments on credit facilities of $25.3 million during the six months ended September 30, 2023 partially offset by the repurchase of $5.6 million worth of shares of common stock held by dissenting shareholders during the six months ended September 30, 2024.
We have no material commitments for capital expenditures as of September 30, 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.
36
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.
Principles of Consolidation and Variable Interest Entities
We consolidate all entities that we control through a majority voting interest or as the primary beneficiary of a variable interest entity (“VIE”). We use, and expect to continue to use, a combination of our equity ownership, governance rights and other contractual arrangements to control operations of these entities. However, these arrangements may not be as effective in providing us with control over these operations as would wholly owning these entities. See Note 2 to our consolidated financial statements included in Part I of this quarterly report for information on variable interest entities.
Under the VIE model, we are required to perform an analysis as to whether we have a variable interest in an entity and whether the entity is a VIE. In evaluating whether we hold a variable interest, we review all of our financial relationships to determine whether we are exposed to the risks and rewards created and distributed by an entity. We hold indirect variable interests in the Red Bug Entities through our acquisition of Amplex.
If we have a variable interest in an entity, we further assess whether the entity is a VIE and, if so, whether we are the primary beneficiary. Entities that do not qualify as VIEs are assessed for consolidation under the voting interest model. The assessment of whether an entity is a VIE requires an evaluation of qualitative factors and, where applicable, quantitative factors. These judgments include: (a) determining whether the entity has sufficient equity at risk, (b) evaluating whether the equity holders, as a group, lack the ability to make decisions that significantly affect the economic performance of the entity and (c) determining whether the entity is structured with disproportionate voting rights in relation to their equity interests.
For entities that are determined to be VIEs, we are required to consolidate those entities where we have concluded that we are the primary beneficiary. The primary beneficiary is defined as the variable interest holder with (a) the power to direct the activities of a VIE that most significantly affect the entity’s economic performance and (b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. In evaluating whether we are the primary beneficiary, we evaluate our economic interests in the entity held either directly or indirectly by us. At each reporting date, we determine whether any reconsideration events have occurred that require us to revisit the primary beneficiary analysis, and we will consolidate or deconsolidate accordingly.
We are the primary beneficiary of the Red Bug Entities, because we indirectly through Amplex have the power to direct activities of the entities that most significantly impact the VIE’s economic performance. Accordingly, we consolidate these entities. The assets and liabilities of the consolidated VIEs are presented gross in the condensed consolidated balance sheets. See Note 2 of our condensed consolidated financial statements for more information on both consolidated and unconsolidated VIEs.
Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities under the voting interest model. Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest or other means. The Company consolidates Amplex under the voting interest model as it owns 56.5% of this entity.
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.
37
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
38
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:
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.
39
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).
40
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
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 September 30, 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) measurement of redeemable noncontrolling interest, certain acquired assets and deferred tax liabilities assumed in the acquisition of a controlling interest in Amplex.
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.
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.
41
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See the disclosure in Note 9 - Commitments and Contingencies to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, which disclosure is hereby incorporated herein by reference.
ITEM 1A. Risk Factors
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.
42
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.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
During the quarter ended September 30, 2024, no Section 16 officer or director as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934 (the "Exchange Act
43
ITEM 6. Exhibits
Exhibit No. |
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Description |
31.1 |
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31.2 |
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32.11 |
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Certificate of the Principal Executive Officer Pursuant to 18 U.S.C. § 1350 |
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32.21 |
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Certificate of the Principal Financial Officer Pursuant to 18 U.S.C. § 1350 |
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|
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101.INS |
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Inline XBRL Instance Document |
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|
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101.SCH |
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Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents |
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104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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1 This certification accompanies the Quarterly Report on Form 10-Q and is not filed as part of it. |
||
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
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Signature |
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Title |
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Date |
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|
|
|
/s/ Jeffrey Royal |
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Chief Executive Officer (Principal Executive Officer) |
|
November 13, 2024 |
Jeffrey Royal |
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|
|
|
|
|
|
|
|
/s/ Charlie Krebs |
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
November 13, 2024 |
Charlie Krebs |
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|
|
45
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey Royal, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nicholas Financial, Inc..
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 13, 2024 |
|
By: |
/s/ Jeffrey Royal |
|
|
|
Jeffrey Royal |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Charles Krebs, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nicholas Financial, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 13, 2024 |
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By: |
/s/ Charles Krebs |
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Charles Krebs |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. § 1350
Solely for the purpose of complying with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned President and Chief Executive Officer of Nicholas Financial, Inc. (the “Company”), hereby certify that the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 13, 2024 |
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By: |
/s/ Jeffrey Royal |
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Jeffrey Royal |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. § 1350
Solely for the purpose of complying with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chief Financial Officer of Nicholas Financial, Inc. (the “Company”), hereby certify that the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 13, 2024 |
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By: |
/s/ Charles Krebs |
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Charles Krebs |
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Chief Financial Officer |
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(Principal Financial Officer) |