Filing identity and reporting period
Important identity discrepancy: The request identifies NeuroOne Medical Technologies Corp., but the supplied Form 10-Q is for Original Source Entertainment, Inc., a Nevada company. This summary reflects the supplied filing, not NeuroOne. It reports the quarter and six months ended June 30, 2015; the financial statements are unaudited.
The company says it intends to license songs for television and music uses and has had limited activity and revenue. It describes itself as a development-stage company.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $300 | $303 | $413 | $468 |
| General and administrative expense | $18,790 | $16,322 | $28,657 | $20,385 |
| Operating loss | $(18,490) | $(16,019) | $(28,244) | $(19,917) |
| Interest expense | $(3,655) | $0 | $(5,484) | $(330) |
| Net loss | $(22,145) | $(16,019) | $(33,728) | $(20,247) |
At June 30, 2015, cash and total assets were each $371, versus $205 at December 31, 2014. Current liabilities totaled $57,488, including $43,251 in non-interest-bearing, unsecured related-party advances due on demand and $5,484 in net related-party convertible notes. Working capital was therefore negative $57,117; stockholders’ deficit was also $57,117. The filing provides no gross margin, and revenue is small relative to operating expenses.
For the six months, operating activities used $32,457 in cash, compared with $155 provided in the prior-year period. Financing provided $32,623: $20,623 of related-party advances and $12,000 of related-party notes. Investing cash flow was zero. Ending cash was $371, compared with $680 at June 30, 2014. No cash interest or income taxes were paid.
Changes, outlook and risks
- Six-month revenue declined $55, while net loss increased $13,481 year over year. Management attributed the larger loss primarily to an $8,272 increase in general and administrative expense, largely legal fees, and a $5,154 increase in interest expense from amortizing debt discounts on convertible notes.
- The company reported $15,225 principal across three related-party convertible notes at June 30, 2015, with a $9,741 aggregate debt discount and $5,484 net carrying value. The notes mature between January and March 2016 and are convertible, at the holders’ option, into shares of Original Source Music, Inc., the subsidiary. The filing says the notes accrue interest at 6% after specified dates.
- The filing states that operating losses and negative operating cash flow raise substantial doubt about the company’s ability to continue as a going concern. Management expects further losses and cash use, plans to seek additional debt or equity financing, and is exploring a potential acquisition or other business combination. It cautions that financing may not be available on acceptable terms and that execution of its plan is not assured.
- No specific financial guidance is provided. Management reports no material capital expenditure commitments, no off-balance-sheet arrangements, and no material subsequent events. It also says disclosure controls were effective as of June 30, 2015 and that there were no material changes in internal control over financial reporting.
- The filing reports no pending or threatened legal proceedings to management’s knowledge. It identifies competition and industry consolidation among forward-looking risks.
Key facts for investors to verify
- Confirm the issuer: the supplied filing is for Original Source Entertainment, Inc., not NeuroOne Medical Technologies Corp.
- Review the going-concern disclosure, near-zero cash balance, working-capital deficit, and dependence on related-party support and future financing.
- Verify the terms, holders, conversion mechanics, maturity dates, and accounting for the three convertible notes; the conversion shares are in the subsidiary, not the parent, according to the filing.
- Check the cash-flow statement presentation: financing proceeds are described in the financing section, although one subtotal is mislabeled “Net Cash Provided by Investing Activities.”
- Note that the MD&A contains apparent period-reference errors in its comparison headings; the financial statements show comparisons of the periods ended June 30, 2015 and 2014.