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EX-31 - SECTION 302 CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL O - Original Source Music, Inc.exhibit31.htm
EX-32 - SECTION 906 CERTIFICATE OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL O - Original Source Music, Inc.exhibit32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)


R

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

 

 or

 

 £

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

 

Commission file number: 333-133961

 

ORIGINAL SOURCE MUSIC, INC.

 (Exact name of registrant as specified in its charter)

 

Nevada

(State or other jurisdiction of 

incorporation or organization)

 

20-8594615

(I.R.S. Employer

Identification No.)

 

8201 South Santa Fe Drive #229, Littleton, Colorado 80120

(Address of principal executive offices) (Zip Code)

 

(303) 495-3728

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes þ   No ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨   No þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨

 

Accelerated filer ¨ 

 

Non-accelerated filer ¨ 

 

Smaller reporting company þ

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

 

 

 

 

 

Emerging growth company ¨ 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨


Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨   No þ

 

APPLICABLE TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of October 31, 2017

Common Stock, $0.001

 

5,273,000



1




TABLE OF CONTENTS

 


PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations  

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

15

 

 

 

Item 4.

Controls and Procedures

16

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

17

 

 

 

Item 1A.

Risk Factors

17

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

 

 

 

Item 3.

Defaults Upon Senior Securities

17

 

 

 

Item 4.

Mine Safety Disclosures

17

 

 

 

Item 5.

Other Information

17

 

 

 

Item 6.

Exhibits

17

 

 

 

SIGNATURES

18





2





PART I – FINANCIAL INFORMATION


Item 1. Condensed Consolidated Financial Statements


Original Source Music, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 2017, and December 31, 2016

 (Unaudited)


 

 

September 30,

2017

 

 

December 31, 2016

 

    Assets

 

 

 

 

 

 

 

 

    Current assets

 

 

 

 

 

 

 

 

    Cash and cash equivalents

 

$

685

 

 

$

842

 

    Prepaid expenses

 

 

1,000

 

 

 

-

 

    Total current assets

 

 

1,685

 

 

 

842

 

 

 

 

 

 

 

 

 

 

    Total assets

 

$

1,685

 

 

$

842

 

 

 

 

 

 

 

 

 

 

    Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

    Current liabilities

 

 

 

 

 

 

 

 

    Accounts payable and accrued liabilities

 

$

100

 

 

$

100

 

    Convertible notes payable, related parties, net of debt discount of $0 and 6,446, respectively

 

 

-

 

 

 

8,171

 

    Total current liabilities

 

 

100

 

 

 

8,271

 

 

 

 

 

 

 

 

 

 

    Notes payable, related parties

 

 

56,035

 

 

 

26,435

 

    Total liabilities

 

 

56,135

 

 

 

34,706

 

 

 

 

 

 

 

 

 

 

    Stockholders’ Deficit

 

 

 

 

 

 

 

 

    Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued and outstanding

 

 

-

 

 

 

-

 

    Common stock, $0.001 par value; 45,000,000 shares authorized; 5,273,000 and 5,073,000 shares issued and outstanding, respectively

 

 

5,273

 

 

 

5,073

 

    Common stock payable

 

 

-

 

 

 

90

 

    Additional paid-in capital

 

 

37,870

 

 

 

36,980

 

    Accumulated deficit

 

 

(97,593)

 

 

 

(76,007)

 

    Total Stockholders’ Deficit

 

 

(54,450)

 

 

 

(33,864)

 

 

 

 

 

 

 

 

 

 

    Total Liabilities and Stockholders’ Deficit

 

$

1,685

 

 

$

842

 


See accompanying notes to unaudited condensed consolidated financial statements



3





Original Source Music, Inc.

Condensed Consolidated Statements of Operations

For the three and nine months ended September, 2017 and 2016

(Unaudited)


 

 

For the three months

ended September 30,

 

For the nine months

ended September,

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

    Revenue

 

$

75

 

$

50

 

$

271

 

$

244

 

 

 

 

 

 

 

 

 

 

 

 

 

    Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

    General and administrative

 

 

1,939

 

 

951

 

 

2,288

 

 

1,206

    Professional fees

 

 

3,300

 

 

1,800

 

 

13,123

 

 

9,215

    Total operating expenses

 

 

5,239

 

 

2,751

 

 

15,411

 

 

10,421

 

 

 

 

 

 

 

 

 

 

 

 

 

    Loss from operations

 

 

(5,164)

 

 

(2,701)

 

 

(15,140)

 

 

(10,177)

 

 

 

 

 

 

 

 

 

 

 

 

 

    Interest expense, related parties

 

 

(2,134)

 

 

(6,177)

 

 

(6,446)

 

 

(13,866)

 

 

 

 

 

 

 

 

 

 

 

 

 

    Loss before income taxes

 

 

(7,298)

 

 

(8,878)

 

 

(21,586)

 

 

(24,043)

 

 

 

 

 

 

 

 

 

 

 

 

 

    Provision for income taxes

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net loss

 

$

(7,298)

 

$

(8,878)

 

$

(21,586)

 

$

(24,043)

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net Loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

    Basic and diluted

 

$

(0.00)

*

$

(0.00)

*

$

(0.00)

*

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

    Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

    Basic and diluted

 

 

5,252,674

 

 

5,073,000

 

 

5,183,330

 

 

5,073,000

 

*denotes net loss per common share of less than $0.01 per share.

 

See accompanying notes to unaudited condensed consolidated financial statements



4





Original Source Music, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended September 30, 2017 and 2016

(Unaudited)



 

 

For the nine months

ended September 30,

 

 

2017

 

 

2016

 

    Cash flows from operating activities:

 

 

 

 

 

 

 

 

    Net loss

 

$

(21,586)

 

 

$

(24,043)

 

    Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

    Amortization of debt discount

 

 

6,446

 

 

 

13,102

 

    Accrued interest to related parties

 

 

-

 

 

 

764

 

    Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

    Prepaid expenses

 

 

(1,000)

 

 

 

-

 

    Accounts payable and accrued liabilities

 

 

1,000

 

 

 

(5,702)

 

    Net cash used in operating activities

 

 

(15,140)

 

 

 

(15,879)

 

 

 

 

 

 

 

 

 

 

    Cash flows from investing activities:

 

 

 

 

 

 

 

 

    Net cash provided by (used in) investing activities

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

    Cash flows from financing activities:

 

 

 

 

 

 

 

 

    Proceeds from issuance of convertible notes payable, related parties

 

 

-

 

 

 

17,117

 

    Repayment of convertible notes payable, related parties

 

 

-

 

 

 

(2,500)

 

    Proceeds from issuance of notes payable, related parties

 

 

14,983

 

 

 

 

    Net cash provided by financing activities

 

 

14,983

 

 

 

14,617

 

 

 

 

 

 

 

 

 

 

    Net decrease in cash and cash equivalents

 

 

(157)

 

 

 

(1,262)

 

 

 

 

 

 

 

 

 

 

    Cash and cash equivalents at beginning of period

 

 

842

 

 

 

1,838

 

 

 

 

 

 

 

 

 

 

    Cash and cash equivalents at end of period

 

$

685

 

 

$

576

 

 

 

 

 

 

 

 

 

 

    Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

   Cash paid during the period for interest

 

$

-

 

 

$

-

 

    Cash paid during the period for income taxes

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

   Supplemental schedule of non-cash financing activities:

 

 

 

 

 

 

 

 

    Professional fees paid by related party

 

$

1,000

 

 

$

-

 

    Convertible notes payable, related parties, exchanged for non-convertible notes payable, related parties

 

$

14,617

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 



5




Original Source Music, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, 2017


Note 1 — Interim Financial Statements

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required for audited annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the condensed consolidated financial statements not misleading have been included. The balance sheet at December 31, 2016, has been derived from the Company’s audited consolidated financial statements as of that date.

 

The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, that was filed with the SEC on April 28, 2017. The results of operations for the nine months ended September 30, 2017, are not necessarily indicative of the results to be expected for the full year.

 

Note 2 — Going Concern


The Company’s financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has suffered a loss from operations and has negative cash flows from operations, and in all likelihood, will be required to make significant future expenditures in connection with marketing efforts along with general administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern.


The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or related parties. By doing so, the Company hopes to generate sufficient capital to execute its business plan of licensing songs to the television and music industry for use in television shows or movies on an ongoing basis. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern.


Note 3 — Summary of Significant Accounting Policies

 

The significant accounting policies followed by the Company for interim reporting are consistent with those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. There were no material changes to our significant accounting policies during the interim period ended September 30, 2017.



6





Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance to clarify the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a comprehensive framework for revenue recognition that supersedes current general revenue guidance and most industry-specific guidance. In addition, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. However, entities reporting under U.S. GAAP are not permitted to adopt the standard earlier than the original effective date of December 15, 2016. An entity should apply the guidance either retrospectively to each prior reporting period presented or retrospectively with the cumulative adjustment at the date of the initial application. The Company is currently in the process of evaluating the impact of adoption of the new accounting guidance on its consolidated financial statements and has not determined the impact of adoption on its consolidated financial statements.


Note 4 — Convertible Notes Payable – Related Parties


 

 

September 30,

 2017

 

December 31, 2016

Convertible Note F

 

 

 

 

 

 

 

 

Principal

 

$

 

 

$

5,703

 

Debt Discount

 

 

 

 

 

(1,267)

 

 

 

 

 

 

 

 

 

 

Convertible Note G

 

 

 

 

 

 

 

 

Principal

 

$

 

 

$

7,114

 

Debt Discount

 

 

 

 

 

(4,269)

 

 

 

 

 

 

 

 

 

 

Convertible Note I

 

 

 

 

 

 

 

 

Principal

 

$

 

 

$

300

 

Debt Discount

 

 

 

 

 

(95)

 

 

 

 

 

 

 

 

 

 

Convertible Note J

 

 

 

 

 

 

 

 

Principal

 

$

 

 

$

1,500

 

Debt Discount

 

 

 

 

 

(815)

 

 

 

 

 

 

 

 

 

 

Total convertible notes payable to related parties, net of debt discounts

 

$

 

 

$

8,171

 

 

 

 

 

 

 

 

 

 




7





Convertible Note F


In February 2016, a related party loaned the Company $5,703. The note would have matured on March 31, 2017, and was interest free until December 31, 2016. On December 31, 2016, the note was amended to extend the maturity date and the interest-free period to December 31, 2017. The note was convertible at the option of the holder into shares of the Company's common stock at a conversion price of $0.002 per share. The Company assessed the embedded conversion feature and determined that the fair value of the underlying common stock at inception exceeded the conversion price of this note and, accordingly, recorded a beneficial conversion feature (capped at proceeds received) of $5,703.  Such beneficial conversion feature was accounted for as a debt discount and was amortized to interest expense, using the straight-line interest rate method, over the life of the note.


Convertible Note G


In May 2016, a related party loaned the Company $7,114. The note would have matured on December 31, 2017. The note was interest free until December 31, 2016. On December 31, 2016, the note was amended to extend the interest-free period to December 31, 2017. The note was convertible at the option of the holder into shares of the Company's common stock at a conversion price of $0.002 per share. The Company assessed the embedded conversion feature and determined that the fair value of the underlying common stock at inception exceeded the conversion price of the note and, accordingly, recorded a beneficial conversion feature (capped at proceeds received) of $7,114. Such beneficial conversion feature was accounted for as a debt discount and was amortized to interest expense, using the straight-line interest rate method, over the life of the note.


Convertible Note I


In June 2016, a related party loaned the Company $300. The note would have matured on March 31, 2017, and was interest free until December 31, 2016. On December 31, 2016, the note was amended to extend the maturity date and the interest-free period to December 31, 2017. The note was convertible at the option of the holder into shares of the Company's common stock at a conversion price of $0.002 per share. The Company assessed the embedded conversion feature and determined that the fair value of the underlying common stock at inception exceeded the conversion price of this note and, accordingly, recorded a beneficial conversion feature (capped at proceeds received) of $300.  Such beneficial conversion feature was accounted for as a debt discount and was amortized to interest expense, using the straight-line interest rate method, over the life of the note.


In July 2017, Convertible Notes F, G, and I in the aggregate amount of $13,117 were exchanged for a non-convertible promissory note in the amount of $13,117 (see details of promissory note below in note 5) and 100,000 shares of common stock.



8





Convertible Note J


In July 2016, a related party loaned the Company $1,500. The note would have matured on July 30, 2017, and was interest free until June 30, 2017. On June 30, 2017, the note was amended to extend the maturity date and the interest-free period to December 31, 2017. The note was convertible at the option of the holder into shares of the Company's common stock at a conversion price of $0.002 per share. The Company assessed the embedded conversion feature and determined that the fair value of the underlying common stock at inception exceeded the conversion price of this note and, accordingly, recorded a beneficial conversion feature (capped at proceeds received) of $1,500.  Such beneficial conversion feature was accounted for as a debt discount and was amortized to interest expense, using the straight-line interest rate method, over the life of the note.


In July 2017, Convertible Note J was exchanged for a non-convertible promissory note in the amount of $1,500 (see details of promissory note below in note 5) and 10,000 shares of common stock.


Note 5 — Notes Payable - Related Parties


Note K


In December 2016, a related party loaned the Company $4,920. The note is interest free until December 31, 2017, after which time bears interest at 6%. The note matures on December 31, 2018, and requires no periodic payment until maturity.


Note L


In December 2016, a related party loaned the Company $1,500. The note is interest free until December 31, 2017, after which time bears interest at 6%. The note matures on December 31, 2018, and requires no periodic payment until maturity.


Note M


In December 2016, three convertible notes payable, totaling $12,515, due to a related party were cancelled, and a new single promissory note payable in the amount of $12,515 was issued to replace the three convertible notes. The new promissory note is due on or before December 31, 2018. The note is interest free until December 31, 2017, after which time it bears interest at 6% per annum and requires no periodic payment until maturity. On January 30, 2017, 50,000 shares of the Company's common stock, valued at par, were issued to the related party in exchange for signing of the non-convertible promissory note.


Note N


In December 2016, two convertible notes payable, totaling $7,500, due to a related party were cancelled, and a new single promissory note payable in the amount of $7,500 was issued to replace the two convertible notes. The new promissory note is due on or before December 31, 2018. The note is interest free until December 31, 2017, after which time it bears interest at 6% per annum and requires no periodic payment until maturity. On January 30, 2017, 40,000 shares of the Company's common stock, valued at par, were issued to the related party in exchange for signing of the non-convertible promissory note.



9





Note P


In March 2017, a related party loaned the Company $2,600. The note is interest free until December 31, 2017, after which time bears interest at 6%. The note matures on December 31, 2018, and requires no periodic payment until maturity.


Note Q


In June 2017, a related party loaned the Company $6,323. The note is interest free and matures on December 31, 2018. The note requires no periodic payment until maturity.


Note R


In July 2017, three convertible notes payable, totaling $13,117, due to a related party were cancelled, and a new single promissory note payable in the amount of $13,117 was issued to replace the three convertible notes. The new promissory note is interest free and matures on December 31, 2018. The note requires no periodic payment until maturity. In exchange for signing of the non-convertible promissory note, 100,000 shares of the Company's common stock, valued at par, were issued to the related party.


Note S


In July 2017, a convertible note payable in the amount of $1,500 due to a related party was cancelled, and a new promissory note payable in the amount of $1,500 was issued to replace the convertible note. The new promissory note is interest free and matures on December 31, 2018. The note requires no periodic payment until maturity. In exchange for signing of the non-convertible promissory note, 10,000 shares of the Company's common stock, valued at par, were issued to the related party.


Note T


In July 2017, a related party loaned the Company $3,800. The note is interest free and matures on December 31, 2018. The note requires no periodic payment until maturity.


Note U


In August 2017, a related party loaned the Company $2,260. The note is interest free and matures on December 31, 2018. The note requires no periodic payment until maturity.


All debt modifications were considered to have an immaterial impact on the fair value of the resulting debt instruments due to the nominal value of shares issued as inducements to exchange the convertible notes for non-convertible notes and the short time frames to maturity.



10





Note 6 — Other Related Party Transactions


Professional fees paid by related party

 

In May 2017, $1,000 of professional fees associated with the preparation of the Company’s 2017 financial statements were paid by a related party on behalf of the Company. These fees were recorded as contributed capital by a related party since no consideration was paid, or will be paid, in exchange for these payments.


Note 7 — Subsequent Events


The Company has evaluated subsequent events through the date of the filing of this interim report on Form 10-Q. Based on this evaluation, the Company did not identify any significant subsequent events that would have a material effect on the consolidated financial statements, which would require an adjustment and/or additional disclosure.  



11





Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our Management’s Discussion and Analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report.

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q contains “forward-looking statements” that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new products or services; our statements concerning litigation or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; our financing plans or growth strategies; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

 

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. 

 

Business Overview


Original Source Music, Inc. (“the Company”, “we”, “us” or “our’) was incorporated in the State of Nevada on August 20, 2009 ("Inception"). We were a wholly owned subsidiary of Original Source Entertainment, Inc., a publicly traded Nevada corporation.  On February 5, 2014, the board of directors of Original Source Entertainment authorized the spin-off of the registrant to shareholders of record as of February 25, 2014.  


The spin-off was done in connection with a change of control of Original Source Entertainment. Under the terms of the spin-off, the registrant’s common shares, par value $0.001 per share, were distributed on a pro-rata basis to each holder of Original Source Entrainment’s common shares on the record date without any consideration or action on the part of such holders. The holders of Original Source Entertainment's common shares as of the record date became owners of 100 percent of our common shares. The spin-off was effective as of May 13, 2016, due to the satisfactory resolution of all comments from the Securities and Exchange Commission to the Registration Statement on Form 10 and the Form 10’s effectiveness.  


There is not expected to be any material change in our operations as a result of the spin-off.



12





We currently have no employees, other than our officers, who are also our directors.


We are a development stage company with a primary focus on licensing music to the television and music industry for use in television shows or movies. The Company has had limited activity and revenue to date.


We review hundreds of music tracks written, produced, and performed by artists who have not already signed away their rights to their original works, then to contract those songs with the highest quality and potential for placement in television and film. The registrant intends to offer a wide variety of instrumental and vocal genres including pop, rock, R&B, jazz, country, singer/songwriter, new age, electronic, dance, funk, children's, adult contemporary, and more.


We contract with artists of all musical genres who own the publishing rights to their songs. Artists are referred to the registrant through advertisement, A&R companies, and referrals from friends, registrant signed artists, and other music industry acquaintances.


Our target customer includes all major and minor television networks, production companies and film makers. We intend to reach such customer bases through marketing, advertising, and direct sales calls.


Critical Accounting Policies, Judgments and Estimates

 

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.


Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to our critical accounting policies as of and for the three and nine months ended September 30, 2017.

 

Results of Operations for the Three and Nine Months Ended September 30, 2017 compared to the Three and Nine Months Ended September 30, 2016

 

During the three and nine months ended September 30, 2017, we generated revenues of $75 and $271, respectively, compared to revenues of $50 and $244 during the three and nine months ended September 30, 2016, respectively.



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During the three and nine months ended September 30, 2017, operating expenses, including general and administrative expenses and professional fees, were $5,239 and $15,411, respectively, compared to $2,751 and 10,421 of operating expenses during the three and nine months ended September 30, 2016. The increase of $2,488 in operating expenses during the three months ended September 30, 2017, was primarily attributed to increases of $1,000 for XBRL filing fees, $800 for legal fees and $700 for accounting services during the three months ended September 30, 2017. The increase of $4,990 in operating expenses during the nine months ended September 30, 2017, was primarily attributed to increases of $4,373 for accounting services and $1,000 for XBRL filing fees, partially offset by a decrease of $465 in legal fees during the nine months ended September 30, 2017.


Interest expense consists of the amortization of debt discounts associated with convertible notes due to related parties. Interest expense decreased by $4,043 and $7,420, respectively, during the three and nine months ended September 30, 2017, to $2,134 and $6,446, respectively, compared with interest expense of $6,177 and $13,866 during the three and nine months ended September 30, 2016. The decreases in interest expense during the interim periods in 2017 are due to the decrease in the number and amounts of convertible notes outstanding with unamortized debt discounts.


During the three and nine months ended September 30, 2017, the Company incurred net losses of $7,298 and $21,586, respectively, compared to net losses of $8,878 and $24,043 during the three and nine months ended September 30, 2016, respectively. The decrease in the net loss of $1,580 for the three months ended September 30, 2017, was primarily related to the decrease of $4,043 in interest expense, partially offset by an increase of $2,488 in operating expenses as discussed above. The decrease in the net loss of $2,457 for the nine months ended September 30, 2017, was primarily related to the decrease of $7,420 in interest expense, partially offset by the increase of $4,990 in operating expenses during the interim period.

 

Liquidity and Capital Resources

 

As of September 30, 2017, we had a cash balance of $685, a decrease of $157 from a balance of $842 at December 31, 2016.

 

Operating Activities

 

Net cash used in operating activities was $15,140 during the nine months ended September 30, 2017, compared with $15,879 used in operating activities during the nine months ended September 30, 2016. The $739 decrease in cash used in operations was due to a decrease of $5,702 in working capital requirements and a decrease in net loss of $2,457; partially offset by a decrease in non-cash charges of $7,420 during the nine months ended September 30, 2017.

 

Investing Activities

 

We neither generated nor used cash in investing activities during the nine months ended September 30, 2017 and 2016.

 

Financing Activities

 

Cash flows provided by financing activities were $14,983 and $14,617 during the nine months ended September 30, 2017 and 2016, respectively.



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During the nine months ended September 30, 2017, the Company received $14,983 from the issuance of promissory notes to a related party.


During the nine months ended September 30, 2016, the Company received $17,117 from the issuance of convertible promissory notes to related parties and repaid $2,500 of a convertible promissory note to a related party.


Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, we have incurred net losses of $21,586 and $24,043 for the nine months ended September 30, 2017 and 2016, respectively, and have an accumulated deficit of $97,593 as of September 30, 2017, which raises substantial doubt about the Company’s 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.

 

Should existing management, stockholders or our affiliates refuse to advance needed funds, however, we would be forced to turn to outside parties to either lend funds to us or buy our securities. There is no assurance that we will be able to raise the necessary funds, when needed, from outside sources.


The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. 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 our operating results.

 

Off Balance Sheet Arrangements

 

We have not entered into any off-balance sheet arrangements.

 

Inflation

 

We do not believe that inflation has had in the past or will have in the future any significant negative impact on our operations.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 



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Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to insure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, or the persons performing similar functions, to allow timely decisions regarding required disclosure.


Under the supervision and with the participation of our CEO and CFO, or the persons performing similar functions, our management has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this interim report.  Based on that evaluation, our CEO and CFO, or the persons performing similar functions, concluded that our disclosure controls and procedures were effective as of September 30, 2017.


Change in Internal Control over Financial Reporting


During the interim period ended September 30, 2017, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There are no legal proceedings, which are pending or have been threatened against us or any of our officers, directors or control persons of which management is aware.

 

Item 1A. Risk Factors

 

Not required for a smaller reporting company. 


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no unregistered sales of equity securities during the interim periods ended September 30, 2017 and 2016.


Item 3. Defaults upon Senior Securities

 

None.


Item 4. Mine Safety Disclosures

 

Not applicable.


Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit 31 — Section 302 Certificate of Principal Executive Officer and Principal Financial Officer

Exhibit 32 — Section 906 Certificate of Principal Executive Officer and Principal Financial Officer




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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

ORIGINAL SOURCE MUSIC, INC.

 

By:

/s/ Lecia L. Walker

 

Lecia L. Walker

 

Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

 

Dated: November 7, 2017

 




 





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