Business context and reporting period
Important identity discrepancy: The supplied filing is for Original Source Entertainment, Inc., a Nevada development-stage company seeking to license songs for television and music uses. It is not identified as NEUROONE MEDICAL TECHNOLOGIES Corp. This 10-Q covers the quarter and six months ended June 30, 2014.
Financial results and liquidity
- Revenue: $303 for Q2 2014 versus $451 in Q2 2013; $468 for the first six months of 2014 versus $857 in the prior-year period. Cost of revenue was zero in these periods, so reported gross profit equaled revenue.
- Net loss: $16,019 in Q2 2014 versus $19,122 in Q2 2013; $20,247 for the first six months versus $22,430. The filing attributes the smaller losses mainly to lower interest expense after related-party debt was forgiven in March 2014. Basic and diluted loss per share was reported as less than $0.01.
- Expenses and margins: General and administrative expense was $16,322 for Q2 and $20,385 for the six months. The filing does not provide a clear margin analysis; reported operating losses were $16,019 for Q2 and $19,917 for the six months.
- Cash flow: Operating activities provided $155 in the first six months of 2014, compared with $17,780 used in the prior-year period. The 2014 result reflected increases in accounts payable and accrued liabilities. Investing cash flow was zero; financing cash flow was also zero in the 2014 cash flow statement. Cash increased from $525 at year-end 2013 to $680 at June 30, 2014.
- Balance sheet: Current assets were $680 and current liabilities were $20,072, a working-capital deficit of $19,392. Total liabilities were $20,072; stockholders’ deficit was $19,392. No note or convertible-note balances remained at quarter-end, but related-party accounts payable of $8,370 and accrued expenses of $11,702 remained.
Material changes versus the prior comparable period
Revenue declined in both the quarter and six-month comparison. Net losses narrowed, primarily because interest expense fell after the March 2014 forgiveness of related-party debt. During the first six months, related parties forgave $22,000 of notes, $6,000 of convertible notes, accrued interest, and $952 of accounts payable; the filing recorded the forgiveness in additional paid-in capital. Common shares outstanding were 5,073,000 at June 30, unchanged from year-end 2013.
Outlook, risks, and unusual items
Management says the company expects continued losses and negative operating cash flows and will need additional debt or equity financing to sustain operations. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern; management’s financing plans are not assured. No material subsequent events through August 14, 2014 were disclosed. The company reported no pending litigation and no material changes in internal control during the quarter.
The MD&A contains an apparent inconsistency: it says the company did not pursue financing during the first six months of 2014, while the cash flow statement also reports no 2014 financing cash flow but the accompanying comparison is described inconsistently. The filing’s reported 2014 cash flow figures show $155 from operations and zero from financing.
Important facts for investors to verify
- Confirm whether this is the intended filing: the registrant and business described do not match NEUROONE MEDICAL TECHNOLOGIES Corp.
- Check the reported financing and cash-flow discussion against the filed statements, given the MD&A inconsistency.
- Assess the company’s very limited cash, working-capital deficit, going-concern warning, and ability to obtain additional financing.
- Review the terms, documentation, and accounting treatment of the March 2014 related-party debt and payable forgiveness.
- Verify current share count and any subsequent corporate or financing developments; the filing reports 5,073,000 shares outstanding as of August 14, 2014.