Filing identity and business context
Material discrepancy: The supplied filing is for Original Source Entertainment, Inc., not NEUROONE MEDICAL TECHNOLOGIES Corp. It reports the quarter ended September 30, 2015, and was signed November 16, 2015. Investors should verify that this is the intended filing before relying on the figures below.
Original Source Entertainment says it seeks to license songs for television and music uses. It describes itself as a development-stage company with limited operating activity and revenue. Amounts below are as presented in the filing.
Financial performance and liquidity
| Metric | Three months ended Sept. 30, 2015 | Three months ended Sept. 30, 2014 | Nine months ended Sept. 30, 2015 | Nine months ended Sept. 30, 2014 |
|---|---|---|---|---|
| Revenue | $48 | $139 | $461 | $607 |
| General and administrative expense | $6,080 | $6,259 | $34,737 | $26,644 |
| Interest expense | $4,034 | $0 | $9,518 | $330 |
| Net loss | $10,066 | $6,120 | $43,794 | $26,367 |
| Operating cash used | Not presented by quarter | $39,140 | $17,144 |
At September 30, 2015, cash and total assets were $201, versus $205 at December 31, 2014. Current liabilities totaled $64,124, including $46,504 in non-interest-bearing, unsecured related-party advances due on demand and $9,349 of convertible notes payable, net of debt discount. Working capital was therefore negative $63,923. Stockholders’ deficit was $63,923. The filing reports no investing cash flows; financing provided $39,136 during the first nine months of 2015, nearly offsetting operating cash use.
Changes, outlook, and risks
- Nine-month revenue declined $146 year over year, while G&A expense rose $8,093 and interest expense rose $9,188. Net loss increased $17,427. Management attributed the higher loss primarily to increased G&A and amortization of beneficial conversion features on related-party convertible notes.
- The filing states that operating losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Management expects further losses and negative cash flows and says additional financing will be needed; it cannot assure financing will be available on acceptable terms.
- Management planned to seek debt or equity financing and was also seeking a potential acquisition or other business combination. The filing gives no assurance these plans will succeed.
- Related-party convertible notes had aggregate principal of $18,485 at September 30, 2015, with maturities from January through December 2016. The filing describes conversion rights into shares of the subsidiary, Original Source Music, Inc., and a 6% interest rate after specified interest-free periods. Debt-discount amortization contributed to reported interest expense.
- Management reported disclosure controls and procedures were not effective as of September 30, 2015. It reported no material changes in internal control over financial reporting during the period. The filing reports no pending or threatened legal proceedings known to the company and no material subsequent events.
Important facts to verify
- Confirm whether this Original Source Entertainment 10-Q, rather than a NeuroOne filing, is the intended source.
- Verify the company’s ability to obtain funding, given $201 in cash, demand related-party advances, and the stated going-concern uncertainty.
- Review the convertible-note conversion terms, maturities, and potential dilution, including the subsidiary-level share conversion provisions.
- Assess the ineffective disclosure controls and whether remediation was subsequently reported.