Business context and reporting period
Filing identity discrepancy: The request identifies NeuroOne Medical Technologies Corp., but the supplied Form 10-Q is for Original Source Entertainment, Inc. This summary reflects the filing text, not the company named in the request. The reporting period ended June 30, 2016.
Original Source Entertainment reported that it completed the spin-off of its operating subsidiary, Original Source Music, Inc., on May 13, 2016, subject to applicable FINRA filings. It described itself thereafter as a blank-check registrant with no specific business plan, no current operations, and no employees other than its sole officer, who is also its sole director.
Financial results and liquidity
- Revenue: $0 in both the three and six months ended June 30, 2016, and in the comparable 2015 periods.
- Net loss: $24,699 for Q2 2016 versus $22,145 for Q2 2015; $33,657 for the first half of 2016 versus $33,728 for the first half of 2015. First-half basic and diluted loss per share was reported as less than $0.01.
- Expenses: First-half general and administrative expenses were $18,493, compared with $19,410 in 2015. No professional fees were reported for the periods shown.
- Cash flow: First-half operating cash use was $8,210 in 2016. Related-party advances provided $8,210 of financing, leaving cash at $0. The cash flow statement reports 2015 operating cash use of $20,623; MD&A gives $20,457.
- Balance sheet at June 30, 2016: Assets were $4,277, including no cash; current and total liabilities were $103,809; stockholders’ deficit was $99,532. Working capital was therefore negative.
- Related-party advances: $60,862 outstanding, up from $52,652 at December 31, 2015. The advances were unsecured, non-interest-bearing, due on demand, and not supported by a formal written commitment for continued support.
Margins are not meaningful because the company reported no revenue. No interest expense or income tax provision was reported for the first half of 2016.
Material changes versus prior periods
Q2 net loss increased by $2,554 year over year: lower general and administrative expenses ($4,559 less) were more than offset by a $7,071 larger loss from discontinued operations. First-half net loss decreased by $71 year over year, primarily due to lower general and administrative expenses. The company reported no investing activity in either first-half period.
At June 30, 2016, assets from discontinued operations were $4,277 and related liabilities were $21,807. The filing states that the spin-off was completed in May and that the company no longer had operations or assets as of that date.
Outlook, risks, and unusual items
Management expected continuing losses and negative operating cash flows and said the company would need additional debt or equity financing. It planned to seek financing but could not assure that funding would be available on acceptable terms. The company also said it might consider a merger or other new business plan, but had no definitive plans or arrangements. The filing states that the financial statements raise substantial doubt about the company’s ability to continue as a going concern and do not include any adjustments that might result from that uncertainty.
Management concluded that disclosure controls and procedures were ineffective as of June 30, 2016. It reported no material changes in internal control over financial reporting during the six-month period. The filing reported no pending or threatened legal proceedings to the company’s knowledge and no off-balance-sheet arrangements.
Key facts for investors to verify
- Confirm the issuer: the supplied filing is for Original Source Entertainment, Inc., not NeuroOne Medical Technologies Corp.
- Verify the spin-off’s completion and the status of the stated FINRA filings.
- Assess the going-concern uncertainty, zero cash balance, working-capital deficit, and availability of future financing.
- Review the terms and continued availability of related-party advances, including the $60,862 due on demand.
- Reconcile the different 2015 operating cash-use figures in the cash flow statement and MD&A ($20,623 and $20,457).