Filing summary
Important identity discrepancy: The supplied filing is a Form 10-Q for Original Source Entertainment, Inc., not NeuroOne Medical Technologies Corp. Investors should verify that this is the intended filing before relying on the information below.
Business context and reporting period
The report covers the quarter and nine months ended September 30, 2016. Original Source says its song-licensing business was held in wholly owned subsidiary Original Source Music, Inc., which was spun off on May 13, 2016. After the spin-off, the registrant reported having no operations or assets and described itself as a blank-check registrant without a specific business plan. It reported one officer, who was also its sole director.
Financial results and liquidity
| Metric | Three months ended September 30, 2016 | Nine months ended September 30, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $5,711 | $24,204 |
| Loss from discontinued operations | $0 | $15,164 |
| Net loss | $5,711 | $39,368 |
| Net cash used in operating activities | Not presented for quarter | $13,777 |
| Related-party advances received | Not presented for quarter | $13,777 |
At September 30, 2016, cash was $0, total assets were $4,277, current liabilities were $109,520, and stockholders’ deficit was $105,243. Related-party advances payable were $66,429, non-interest-bearing, unsecured, and due on demand. Working capital was deficient. No investing cash flows, interest paid, or income taxes paid were reported. Gross margin and debt metrics are not meaningful or clearly presented given the absence of revenue and the company’s reported post-spin-off status.
Changes versus prior comparable periods
Quarterly net loss narrowed to $5,711 from $10,066 in 2015, mainly because the prior-year quarter included a $7,477 discontinued-operations loss; general and administrative expense rose by $3,122. Nine-month net loss narrowed to $39,368 from $43,793, as discontinued-operations losses fell by $6,542, partly offset by a $2,117 increase in general and administrative expense. Operating cash use declined to $13,777 from $23,876, while related-party advances received also declined, from $23,876 to $13,777.
Outlook, risks, and other notable items
- Management said losses and negative operating cash flows are expected to continue and additional debt or equity financing will be needed; it gave no assurance financing will be available on acceptable terms.
- The filing states that the company’s losses, negative operating cash flows, and working-capital deficiency raise substantial doubt about its ability to continue as a going concern. Financial statements contain no adjustments for the outcome of this uncertainty; management also notes an auditor going-concern qualification in the April 14, 2016 annual report.
- Related-party advances are not supported by a formal written commitment for continued funding.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2016. The company reported no material changes to internal control over financial reporting during the period.
- No material subsequent events, legal proceedings, or off-balance-sheet arrangements were reported.
- The filing says the spin-off was subject to applicable FINRA filings. It also contains inconsistent or potentially erroneous period references in MD&A, including a cash-balance sentence referring to “June 30, 2016 and December 31, 2016.”
Facts investors should verify
- Confirm the filing’s registrant identity and whether it is relevant to NeuroOne Medical Technologies Corp.
- Verify the spin-off’s completion, distribution status, and any remaining FINRA requirements.
- Review the company’s ability to obtain funding, the terms and collectability of related-party advances, and the going-concern disclosures.
- Check the original filed statements and subsequent filings for clarification of the inconsistent date references and post-spin-off assets and liabilities.
- Consider the reported ineffective disclosure controls when assessing the reliability and timeliness of reported information.