The accompanying notes are an integral part of the consolidated financial statements.
ORIGINAL SOURCE ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Original Source Entertainment, Inc. (the Company), was incorporated in the State of Nevada on August 20, 2009. The Company plans to license songs to the television and music industry for use in television shows or movies.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of operations for a full year.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of Original Source Entertainment, Inc. and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.
The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Revenue is recognized on an accrual basis after services have been performed under contract terms, the service price to the client is fixed or determinable, and collectability is reasonably assured.
Property and equipment
Property and equipment are recorded at cost and depreciated under the straight line method over each item's estimated useful life.
The carrying value of the Companys financial instruments, as reported in the accompanying balance sheet, approximates fair value.
Stock based compensation
The Company accounts for employee and non-employee stock awards under ASC 718, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Statements in this Managements Discussion and Analysis of Financial Condition and Results of Operation, as well as in certain other parts of this quarterly report on Form
10-Q (as well as information included in oral statements or other written statements made or to be made by Original Source) that look forward in time, are forward-looking statements made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, expectations, predictions, and assumptions and other statements which are other than statements of historical facts. Although Original Source believes such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements are subject to, and are qualified by, known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by those statements. These risks, uncertainties and other factors include, but are not limited to Original Sources ability to estimate the impact of competition and of industry consolidation and risks, uncertainties and other factors set forth in Original Sources filings with the Securities and Exchange Commission, including without limitation to this Annual Report on Form 10-Q.
Original Source undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.
Critical Accounting Policies
The following discussion as well as disclosures included elsewhere in this Form 10-Q are based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. These financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. Original Source continually evaluates the accounting policies and estimates used to prepare the financial statements. Original Source bases its estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.
Trends and Uncertainties
There are no material commitments for capital expenditure at this time. There are no trends, events or uncertainties that have had or are reasonably expected to have a material impact on our limited operations. There are no known causes for any material changes from period to period in one or more line items of Original Sources financial statements.
Liquidity and Capital Resources
At September 30, 2012, Original Source had a cash balance of $1,485, which represents a $12,366 decrease from the $13,851 balance at December 31, 2011. The decrease was primarily the result of increased general and administrative expenses.
For the nine months ended September 30, 2012 and 2011, we did not pursue any investing activities.
For the nine months ended September 30, 2012, we did not pursue any financing activities. For the nine months ended September 30, 2011, we received $3,500 from notes payable borrowings and $4,250 from the sale of common stock, resulting in net cash provided by financing activities for the period of $7,750.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, Original Source has incurred losses of $12,366 and $4,220 for the nine months ended September 30, 2012 and 2011, respectively, and a working capital deficiency which raises substantial doubt about the Companys ability to continue as a going concern.
Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company, but cannot assure that such financing will be available on acceptable terms.
The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve Original Sources operating results.
Results of Operations for the three and nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011, and for the period from August 20, 2009 (Inception) through September 30, 2012.
For the three months ended September 30, 2012, we received royalty revenues of $23, had general and administrative expenses of $4,754 and interest expense of $49, resulting in a net loss of $4,780 for the period.
Comparatively, for the three months ended September 30, 2011, we received royalty revenues of $812, had general and administrative expenses of $4,938 and interest expenses of $52, resulting in a net loss of $4,178 for the period.
For the nine months ended September 30, 2012, we received royalty revenues of $561, had general and administrative expenses of $12,927, and had interest expense of $169, resulting in a net loss of $12,535 for the period.
Comparatively, for the nine months ended September 30, 2011, we received royalty revenues of $5,101, had general and administrative expenses of $17,071, and had interest expense of $120, resulting in a net loss of $12,090 for the period.
For the period from August 20, 2009 (Inception) through June 30, 2012, we received royalty revenues of $7,524 and had cost of sales of $2,138, resulting in a gross profit of $5,386. We had general and administrative expenses of $54,003 and interest expense of $345, resulting in net loss of $48,962 for the period.
Management made continued efforts to reduce general and administrative expenses for the three and nine months ended September 30, 2012 and 2011, and for the period from August 20, 2009 (Inception) through September 30, 2012 due to the lack of revenue.
Recently Issued Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the accompanying financial statements.
Off Balance Sheet Arrangements
Disclosure of Contractual Obligations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable for smaller reporting companies.
Item 4. Controls and Procedures
During the three and nine months ended September 30, 2012, there were no changes in our internal controls over financial reporting (as defined in Rule 13a- 15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, 2012. Based on this evaluation, our chief executive officer and principal financial officers have concluded such controls and procedures to be effective as of September 30, 2012 to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Not applicable for smaller reporting companies
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Exhibit 31* - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32* - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS** XBRL Instance Document
Exhibit 101.SCH** XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.LAB** XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
**XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 13, 2012
ORIGINAL SOURCE ENTERTAINMENT, INC.
By: /s/Lecia L. Walker
Lecia L. Walker
Chief Executive Officer
Principal Financial Officer