Business context and reporting period
This is a Form 10-Q for the three months ended March 31, 2017. The filing is by Original Source Entertainment, Inc., not NeuroOne Medical Technologies Corp. The company says it had spun off its operating subsidiary in May 2016 and was a blank-check registrant with no current operations, employees other than its sole officer, or specific business plan. It reported negotiations for a potential acquisition of NeuroOne, Inc.; no definitive agreement had been completed, and there was no assurance the transaction would close.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $8,754 | $4,386 |
| Net loss | $8,754 | $8,959 |
| Operating cash flow | $(3,288) | $0 |
| Cash, March 31 | $0 | $0 at December 31, 2016 |
| Total liabilities, March 31 | $104,874 | $117,927 at December 31, 2016 |
There was no revenue or reported margin to assess. At March 31, 2017, the company had no assets, including no cash, and a stockholders’ deficit of $104,874. Current liabilities included $27,828 of accounts payable and $77,046 of unsecured, non-interest-bearing related-party advances due on demand. The advances increased from $73,758 at year-end; the company received $3,288 in related-party advances during the quarter, matching its operating cash use. No investing cash flows, interest payments, or income tax payments were reported. Basic and diluted loss per share was reported as less than $0.01.
Changes, outlook, and risks
- Net loss improved by $205 year over year: the prior-year period included a $4,573 loss from discontinued operations, while current-period G&A expense rose by $4,368, primarily from legal, accounting, and audit fees.
- Management and the notes state that recurring losses, negative operating cash flows, and a working-capital deficiency raise substantial doubt about the company’s ability to continue as a going concern. Management expects losses and negative cash flows to continue and plans to seek debt or equity financing, but cannot assure funding will be available on acceptable terms. The filing says the auditor’s April 17, 2017 report included a going-concern qualification.
- On April 17, 2017, the board and majority stockholder authorized a proposed name change to NeuroOne Medical Technologies Corporation, increases in authorized shares, conversion from Nevada to Delaware, and a 2017 equity incentive plan. The filing says some corporate actions may be undertaken only if a proposed business combination is consummated; the transaction remained under negotiation and diligence.
- Disclosure controls and procedures were assessed as ineffective as of March 31, 2017. Management reported no material changes in internal control over financial reporting during the quarter.
- No legal proceedings, material capital expenditure commitments, off-balance-sheet arrangements, or significant subsequent events were reported.
Important facts to verify
- Confirm the identity and status of the issuer: this filing’s financial statements and cover identify Original Source Entertainment, Inc., while the requested company name appears only as a proposed post-quarter name change.
- Verify whether the proposed NeuroOne transaction closed, and whether the authorized name, share-capital, state-of-incorporation, and incentive-plan changes were implemented.
- Review funding availability, the demand terms and repayment prospects of the $77,046 related-party advances, and the going-concern qualification.
- Reconcile the cash-flow discussion: the MD&A describes a reduction in accounts payable and accrued liabilities, but the cash-flow statement reports a positive $5,466 change and the balance sheet shows accounts payable rising from $22,362 to $27,828.
- Assess remediation of the ineffective disclosure controls and procedures.