Business context and reporting period
This is an annual report for the year ended December 31, 2015, filed April 14, 2016. The filing identifies the registrant as Original Source Entertainment, Inc., a Nevada development-stage company seeking to license music for television and film. The request metadata names NeuroOne Medical Technologies Corp.; this does not match the company identified in the filing and should be verified.
The company reported very limited operating activity and revenue. Its wholly owned subsidiary, Original Source Music, held the music-licensing operations. A shareholder spin-off of that subsidiary, authorized in 2014, remained pending SEC effectiveness of the subsidiary’s registration statement; the filing describes the business as still consolidated.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $742 | $773 |
| General and administrative expense | $49,587 | $36,687 |
| Interest expense | $14,018 | $330 |
| Net loss | $(62,863) | $(36,244) |
| Cash used in operating activities | $(45,151) | $(26,173) |
| Cash provided by financing activities | $46,784 | $25,853 |
| Cash at year-end | $1,838 | $205 |
At December 31, 2015, total assets were $1,838 and current liabilities were $83,330, implying a working-capital deficit of $81,492. Liabilities included $52,652 in unsecured, non-interest-bearing related-party advances due on demand; $13,619 in net carrying value of related-party convertible notes; $16,659 in accounts payable; and $400 in related-party accrued liabilities. Stockholders’ deficit was $81,492. Gross margin is not presented, and revenue was too small relative to expenses for operating profitability.
Operating cash use increased year over year as the loss widened. Financing came from related-party advances and convertible notes; the filing reports no investing cash flows. The company had no outstanding common-stock issuances during 2015 and reported 5,073,000 shares outstanding.
Material changes, outlook and risks
- Revenue declined $31, while the net loss increased $26,619. G&A rose $12,900, and interest expense rose substantially, primarily reflecting $13,619 of debt-discount accretion.
- Management expected continued losses and negative operating cash flows and said additional debt or equity financing would be needed. It could not assure financing would be available on acceptable terms; no quantified revenue or earnings guidance was provided.
- The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for the outcome of that uncertainty.
- The business had approximately 217 artist/composer contracts and more than 1,100 tracks, but management said material revenue growth depended on substantially increased marketing and funding. Historically, Warner Bros. accounted for approximately 90% of revenue, with NBC and CBS each about 5%; a production company assisted with approximately 80% of revenue from those major networks.
- Related-party convertible notes carried potential conversion into Original Source Music shares, with stated maturities extending from 2016 into 2017. The filing disclosed extensions for two notes and a further related-party loan after year-end.
- Disclosure controls and internal control over financial reporting were deemed ineffective, with a material weakness attributed to limited resources and lack of segregation of duties. There was no auditor attestation of internal controls.
- The company reported no trading market for its common stock, no dividends, no pending or threatened litigation, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the intended issuer: the supplied metadata says NeuroOne Medical Technologies Corp., but this filing is for Original Source Entertainment, Inc.
- Check whether the Original Source Music spin-off was completed, and clarify which entity owns and operates the music catalog and licensing rights.
- Verify current cash, related-party funding availability, debt balances, note extensions, conversion terms, and potential dilution.
- Assess the sustainability and concentration of licensing revenue, including reliance on Warner Bros. and the production-company intermediary.
- Review subsequent financing, going-concern developments, and remediation of the disclosed control weaknesses.