Filing summary
Filing and period: The supplied filing is Original Source Entertainment, Inc.’s Form 10-K for the fiscal year ended December 31, 2012, signed April 11, 2013. This does not match the requested company, NeuroOne Medical Technologies Corp., or the “2012 Q4” period label; the filing covers the full fiscal year.
Business context and financial performance
Original Source Entertainment is a development-stage music-licensing business. It licenses songs for television and film and reports a catalog of more than 1,100 tracks. The company says it has approximately 217 artist/composer contracts. Warner Bros. accounted for about 90% of revenue, with NBC and CBS each about 5%.
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $921 | $5,398 |
| Cost of sales | $0 | $2,138 |
| Gross profit | $921 | $3,260 |
| Gross margin | 100% | About 60% |
| General and administrative expense | $14,654 | $30,688 |
| Operating loss | $13,733 | $27,428 |
| Interest expense | $227 | $176 |
| Net loss | $13,960 | $27,604 |
| Cash used in operating activities | $13,733 | $27,428 |
| Cash at year-end | $1,118 | $13,851 |
At December 31, 2012, total assets were $1,118, all cash. Current liabilities were $18,355, including $17,000 of current notes payable and $403 of accrued interest; working capital was negative $17,237. Stockholders’ deficit was $17,237. The balance sheet reports no long-term debt at year-end. The company had 5,073,000 common shares outstanding and no preferred shares outstanding.
Changes, outlook, and risks
- Revenue fell about 83% year over year, while the net loss narrowed by about 49%, primarily as general and administrative expenses declined.
- Cash declined by $12,733 during 2012. Financing provided $1,000 from borrowings, compared with $32,150 in 2011 from borrowings and stock sales; there were no investing cash flows in either year.
- Management expects continued losses and negative operating cash flows and says additional debt or equity financing is needed. It plans to seek financing but cannot assure it will be available on acceptable terms. The auditor’s report raises substantial doubt about the company’s ability to continue as a going concern.
- Management says revenue growth depends on increased marketing. It describes plans to expand marketing, pursue cue and transition music, and potentially explore a recording label, but gives no quantified guidance or forecast.
- The company disclosed significant customer concentration, no employees other than its officers/directors, intense competition, and no established trading market for its common stock. The CEO verbally agreed to provide possible interest-free loans as her personal budget allows; there is no specified repayment date.
- Notes payable totaled $17,000, including $3,500 described as presently due and $13,500 due in 2013. A separate $2,000 note is convertible at the holder’s discretion under terms that could result in substantial share dilution if the stock is not quoted on an exchange.
Facts investors should verify
- Confirm the filing identity: the source is for Original Source Entertainment, not NeuroOne Medical Technologies.
- Check the reported customer concentration and the sustainability and collectability of licensing and royalty revenue; the filing also describes $2,000 due from an independent filmmaker, which is not separately shown as an asset on the balance sheet.
- Review near-term debt maturities, accrued interest, convertible-note terms, and the company’s ability to raise financing given its limited cash and going-concern qualification.
- Reconcile narrative figures: MD&A contains inconsistent period labels and loss references, while the audited statements report 2011 net loss of $27,604 and 2012 net loss of $13,960.