Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - NightCulture, Inc.Financial_Report.xls
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R6.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R5.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R1.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R3.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R4.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R9.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R8.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R7.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R2.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R26.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R25.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R14.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R11.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R27.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R17.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R20.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R10.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R24.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R15.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R22.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R19.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R13.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R16.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R21.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R12.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R18.htm
XML - IDEA: XBRL DOCUMENT - NightCulture, Inc.R23.htm
EX-32.1 - CERTIFICATION - NightCulture, Inc.night_ex321.htm
EX-31.1 - CERTIFICATION - NightCulture, Inc.night_ex311.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2012
 
OR
 
o
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: 000-49648
 
NIGHTCULTURE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
 
73-1554122
(State of Incorporation)
 
(IRS Employer Identification No.)
     
6400 Richmond Avenue, Houston, TX
 
77057
(Address of Principal Executive Offices)
 
(Zip Code)

(832) 535-9070
(Registrant’s Telephone Number)

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) been subject to such filing requirements for the past 90 days.  Yes  x  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 x   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, non-accelerated filer, or a smaller reporting company.
 
Large accelerated filer
o
Accelerated filed  
o
Non-accelerated filer   o Smaller reporting company x

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

As of November 12, 2012, the Registrant had 50,332,321 shares of common stock issued and outstanding.
 


 
 

 
TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION      
         
Item 1.  
Financial Statement (Unaudited)
  3  
         
 
Balance Sheets as of September 30, 2012 and December 31, 2011
    3  
           
 
Statements of Operations for the Three and Nine Months Ended September 30, 2012 and 2011
    4  
           
 
Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011
    5  
           
 
Notes to Financial Statement
    6  
           
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    12  
           
Item 3.
Quantitative and Qualitative Disclosures About Market Risks
    16  
           
Item 4.
Controls and Procedures
    16  
           
PART II – OTHER INFORMATION        
           
Item 5.
Other Information
    17  
           
Item 6.
Exhibits
    17  
           
SIGNATURES     18  
 
 
2

 

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements.
 
NIGHTCULTURE, INC.
CONSOLIDATED BALANCE SHEETS

   
September 30,
2012
   
December 31,
2011
 
 
 
(Unaudited)
       
ASSETS
Current assets:
           
Cash and cash equivalents
  $ 5,801     $ 13,105  
Inventory
    14,551       11,387  
Total current assets
    20,352       24,492  
                 
Fixed assets, net of depreciation of $26,472 and $19,322 respectively
    9,093       9,713  
Other assets, net of accumulated amortization of $29,764 and $21,064, respectively
    637,811       56,511  
Total assets
  $ 667,256     $ 90,716  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)
Current liabilities:
               
Accounts payable and accrued expense
  $ 598,303     $ 604,940  
Taxes payable
    6,246       3,537  
Notes payable
    694,349       694,349  
Advances- related party
    22,500       22,500  
Derivative liabilities
    118,211       --  
Total current liabilities
    1,439,609       1,325,326  
                 
Convertible debentures
    500,000       480,818  
Total liabilities
    1,939,608       1,806,144  
                 
Stockholders’ equity (deficit):
               
Preferred stock, $0.001 par value, 1,000,000 authorized,  none outstanding
    --       --  
Common stock, $0.001 par value, 500,000,000 authorized, 50,322,321 and 46,453,152 issued and outstanding, respectively
    50,322       46,453  
Additional paid-in capital
    7,757,580       6,942,613  
Accumulated deficit
    (9,080,255 )     (8,704,494 )
Total stockholders’ equity (deficit)
    (1,272,353 )     (1,715,428 )
                 
Total liabilities and stockholders’ equity (deficit)
  $ 667,256     $ 90,716  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
3

 
 
NIGHTCULTURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
    Three Months
Ended September 30,
   
 Nine Months
Ended September 30,
    2012     2011     2012     2011  
                         
Revenue
  $ 483,804     $ 386,137     $ 1,731,877     $ 1,026,928  
Direct costs
    234,622       269,501       707,477       540,727  
Gross profit
    249,182       116,636       1,024,400       486,201  
                                 
Operating expenses:
                               
Depreciation and amortization expense
    4,599       2,832       13,517       14,798  
General and administrative expense
    371,522       354,389       1,210,992       764,238  
Total operating expenses
    (371,121 )     (357,221 )     1,224,509       779,036  
                                 
Income (loss) from operations
    (126,939 )     (240,585 )     (200,109 )     (292,835 )
                                 
Other income (expense)
                               
Interest expense
    (19,268 )     (22,208 )     (56,541 )     (58,208 )
Loss on equipment
    --       --       (900 )     --  
Gain (loss) on change in fair value of derivative liabilities
    (3,040 )     --       (118,211 )     --  
Total other income (expense)
    (22,308 )     (22,208 )     (175,652 )     (58,208 )
                                 
Net income (loss)
  $ (149,247 )   $ (262,793 )   $ (375,761 )   $ (351,043 )
                                 
Net income (loss) per share:
                               
Basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
Weighted average number of shares outstanding
                               
Basic and diluted
    49,509,134       6,453,152       48,589,053       6,453,152  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
4

 
NIGHTCULTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
Nine Months Ended September 30,
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net loss
  $ (375,761 )   $ (351,403 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization expense
    9,320       221  
Loss (gain) on change in fair value of derivative liabilities
    118,211       --  
Changes in operating assets and  liabilities:
               
Bank overdraft
    --       (1,684 )
Inventory
    (3,164 )     --  
Accounts payable and accrued expense
    41,381       60,208  
Taxes payable
    2,709       2,408  
                 
Net cash provided by (used in) operating activities
    (207,304 )     (289,890 )
                 
Cash flows from investing activities:
               
Acquisition of other assets
    (300,000 )     --  
Net cash used in investing activities
    (300,000 )     --  
                 
Cash flows from financing activities:
               
Cash received from convertible debentures
    500,000       350,000  
Proceeds (payments) on advances from related party
    --       (21,025 )
Net cash provided by financing activities
    500,000       328,975  
                 
Net increase (decrease) in cash
    (7,304 )     39,085  
Cash – beginning of period
    13,105       226  
Cash – end of period
  $ 5,801     $ 39,311  
                 
SUPPLEMENT DISCLOSURES:
               
Interest paid
  $ --     $ --  
Income taxes paid
  $ --       --  
                 
NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Stock issued for conversion of convertible debenture and accrued interest
  $ 528,836     $ --  
Stock issued for purchase of assets
  $ 290,000       --  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 
5

 

NIGHTCULTURE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

NightCulture, Inc. (the “Company”) is incorporated under the laws of the State of Nevada. The Company operates in the event promotion business.

The Company was originally incorporated as Texxon, Inc. on October 6, 1998, under the laws of the State of Oklahoma.   From inception until 2011, the Company pursued various business plans under multiple names, made an acquisition pursuant to a share exchange and carried out multiple reverse stock splits.  From March 2009 until July 31, 2011, the Company operated under the name XXX Acquisition Corp and conducted no operations other than seeking a business to acquire.  Since completion of an Exchange (defined below) in July 2011, the Company has been engaged in the event promotion business. In August 2011, the Company changed its name to NightCulture, Inc. and carried out an 8-for-1 forward stock split.  See “Reverse Merger” below.  In May 2012, the Company acquired Stereo Live, a related event venue operator, as a wholly-owned subsidiary. See “Stereo Live Acquisition” below.   In September 2012, the Company acquired the assets of Full Access, an event promotion operator in Dallas, Texas.  See “Full Access Acquisition” below.

Reverse Merger

On July 31, 2011, the Company completed a share exchange (the “Exchange”) with Night Culture, Inc. (“Night Culture – Texas), a Texas corporation. Under terms of the Exchange, the Company issued 5,000,000 shares of its common stock to the shareholders of Night Culture – Texas in exchange for all the outstanding shares of Night Culture – Texas. As a result of the Exchange, Night Culture – Texas became a wholly owned subsidiary of the Company, the sole officer of the Company resigned and was replaced by the sole officer of Night Culture – Texas, a director of Night Culture – Texas was appointed to the board of directors of the Company, the shareholders of Night Culture – Texas became the majority shareholders of the Company and the Company adopted the business plan of Night Culture – Texas.  In August 2011, the Company changed its name from XXX Acquisition Corp. to NightCulture, Inc. and the Company affected an 8-for-1 forward stock split.

The Exchange was accounted for as a reverse-merger and recapitalization and Night Culture - Texas is considered the accounting acquirer for accounting purposes and XXX Acquisition the acquired company. The business of Night Culture - Texas became the business of XXX Acquisition. Consequently, the assets and liabilities and the operations reflected in the historical financial statements prior to the Exchange are those of Night Culture - Texas and are recorded at the historical cost basis of Night Culture - Texas.

Stereo Live Acquisition

On May 21, 2012, the Company acquired from Michael Long and Surain Adyanthaya 100% ownership of Stereo Live, LLC, a Texas limited liability company (“Stereo Live”), in exchange for the issuance of one share of stock to each of Messrs. Long and Adyanthaya and the agreement of the Company to indemnify Messrs. Long and Adyanthaya against any obligations of Stereo Live that may have been guaranteed by those individuals. Stereo Live is the owner/operator of a live music venue located at 6400 Richmond Avenue, Houston, Texas.  Messrs. Long and Adyanthaya are the principal shareholders of the Company and, at the time of the Company’s acquisition of Stereo Live, Stereo Live was indebted to the Company in the amount of $151,500.
 
 
6

 

Full Access Acquisition

On September 13, 2012, the Company entered into a purchase agreement with two individuals to acquire, and did acquire, the assets of Full Access, a promotions and production business in the Dallas, Texas market. Under terms of the agreement, the Company paid the individuals $300,000 cash plus issued 1,000,000 shares of common stock with a value of $290,000, for a total purchase price of $590,000.  In addition the Company entered into a three year employment agreement with one of the sellers. The Company agreed to pay the individual $50,000 per year in salary plus 20% of the net profit from events produced and promoted in the Dallas market. The Company also entered into a two year advisory consulting agreement with the second seller. Under the terms of this agreement, the Company agreed to pay 10% of the net received from events produced and promoted in the Dallas market.

Financial Statements Presented

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end December 31, 2011 as reported on Form 10-K, have been omitted.

Reclassifications of Prior Period Statements

Certain reclassifications of prior period consolidated financial statement balances have been made to conform to current reporting practices, including the consolidation of balances and operating results of Stereo Live for all 2011 periods.

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which contemplate continuation of the Company as a going concern. The Company incurred a net loss of $375,761 for the nine months ending September 30, 2012.  As of September 30, 2012, the Company reported an accumulated deficit of $9,080,255.  As of September 30, 2012, these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

The Company’s plans to attain profitability, improve its liquidity and service its debt entails strategic initiatives designed to increase revenues and, in turn, profitability and efforts to secure additional capital and funding through sales of equity and potential profit sharing arrangements with partners that may agree to fund specific events.  The Company’s plans regarding sales of equity to raise capital may include accessing funding under an equity line of credit facility established in 2011 under which the Company would have the ability to put up to $1,000,000 of its common stock to the provider of the facility based on sales of shares at a discount to the price of the Company’s common stock.  Access to funding under the equity line of credit facility is contingent on, among other things, filing a registration statement with the Securities and Exchange Commission covering the shares underlying the equity line of credit facility and having the registration statement declared effective.  There is no assurance that the Company will be successful in its efforts to grow its revenues and profitability or to secure additional equity funding, through the equity line of credit facility or otherwise.

 
7

 
 
NOTE 3 – DERIVATIVE INSTRUMENTS

The Company evaluates all of it financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Under ASC-815 the convertible debentures and warrants issued (See “Note 8 – Convertible Debentures and Note 8 – Warrants” below) are considered an embedded derivative requiring measurement of it beneficial conversion feature. ASC-815-15-35-2 states if an entity cannot reliably identify and measure the embedded derivative that paragraph 815-15-25-1 requires be separated from the host contract, the entire contract shall be measured subsequently at fair value with gain or loss recognized in earnings.

As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1    –
Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2     -
Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

Level 3     –
Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
 
 
8

 
 
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as September 30, 2012.

Recurring Fair Value Measures
Level 1
 
Level 2
   
Level 3
   
Total
 
                     
LIABILITIES:
                   
     Derivative liabilities - at inception
  $ --     $ --     $ (660,221 )   $ ( 660,221 )
     Change in derivative liability
    --       --       542,000       542,000  
     Derivative liability as of September 30, 2012
    --       --       (118,211 )     (118,211 )

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

NOTE 5 – NOTE PAYABLE

The Company issued a promissory note to First Bridge Capital Inc., on January 20, 2007 with interest accruing at 10%. The principal along with the accrued interest was due on or before December 31, 2007 or on the date the Company receives proceeds from the public offering of its shares, whichever is earlier.  During the period ending March, 2009 the Company agreed to convert $258,378 of debt to 56,786,461 shares of common stock. As neither has occurred, the note is in default with the outstanding balance of the note payable as of September 30, 2012 with a principal balance of $649,349 plus accrued interest of $463,527 for a total amount of $1,112,876.

NOTE 6 – CONVERTIBLE DEBENTURES

2011 Debentures

During the year ending December 31, 2011, Night Culture – Texas, now a wholly-owned subsidiary of the Company, issued $480,818 of convertible debentures (the “2011 Debentures”) maturing on December 30, 2013. The Debentures accrued interest at 5% per annum with a default rate of 18% per annum.  The 2011 Debentures were convertible into common stock of Night Culture – Texas at a price equal to 70% of the average closing price of the common stock over the 20 trading day period ending prior to the date of conversion; provided, however, that a holder of 2011 Debentures could not convert 2011 Debentures to the extent that the share holdings in Night Culture - Texas of such holder would exceed 4.99% following such conversion. On February 27, 2012, following the Company’s acquisition of NightCulture – Texas, the Company, (NightCulture - Nevada) assumed the 2011 debentures and accompanying warrants under the terms as issued by its subsidiary NightCulture - Texas.

During the nine months ending September 2012, the holders of the 2011 Debentures converted all $480,818 of the 2011 Debentures, and accrued interest, into 2,869,178 shares of common stock. (See “Note 7 – Equity”).
 
 
9

 

2012 Debentures

On September 12, 2012 the Company issued $500,000 of convertible debentures (the “2012 Debentures”) maturing on September 11, 2015.  The 2012 Debentures accrue interest at 5% per annum with a default rate of 12% per annum. The 2012 Debentures are convertible into common stock of the Company at 50% of the average closing price of the 20 day trading price ending prior to the date of conversion into the Company common stock.

NOTE 7 – EQUITY

On July 30, 2011, the Company issued 5,000,000 shares of common stock to two individuals in exchange of all the outstanding shares (100,000,000) of Night Culture - Texas.  The issuance of the shares caused a change in control of the Company.  (See “Note 1 – Organization and Basis of Presentation – Reverse Merger”).

On August 26, 2011, the Company effected an eight-for-one (8-for-1) forward split to shareholders of record on August 19, 2011.  As a result of this forward stock split, the Company’s outstanding shares of common stock increased to 46,453,152.

In March 2012, the Company issued 2,869,178 shares of common stock to the 2011 Debenture holders on conversion of $480,818 plus accrued interest owing on the 2011 Debentures. (See “Note 6 – Convertible Debentures”).

On September 17, 2012 the Company issued 1,000,000 shares of commons stock to two individuals with a value of $290,000 for the acquisition of Full Access.

NOTE 8 – WARRANTS

2011 Warrants

In conjunction with the issuance of the 2011 Debentures, Night Culture – Texas issued warrants (the “2011 Warrants”) to purchase 500,000 shares of common stock for each $10,000 in principal amount of 2011 Debentures issued.  On February 27, 2012, the Company assumed all obligations under the 2011 Warrants. At September 30, 2012, 2011 Warrants to purchase an aggregate of 24,040,900 shares of the Company’s common stock were issued and outstanding.  The 2011 Warrants are exercisable until December 31, 2014 at a price equal to 70% of the average closing price of the common stock over the 20 trading day period ending prior to the date of conversion; provided, however, that a holder of 2011 Warrants may not exercise 2011 Warrants to the extent that the share holdings of such holder would exceed 4.99% following such exercise.

2012 Warrants

On September 12, 2012 with the issuance of the 2012 Debentures, the Company issued warrants (the “2012 Warrants”) entitling the holder to purchase up to 25,000,000 shares of the Company common stock at 50% of the average closing price of the 20 day period ending one day prior to exercising the 2012 Warrants. The 2012 Warrant holder may exercise the 2012 Warrants on or before December 31, 2015.
 
The fair value of each of the 2011 and 2012 Warrants granted was determined using the Black-Scholes pricing model and the following assumptions:

   
September 30,
 
   
2012
   
2011
 
             
Discount rate
    0.03 %     --  
Expected life
 
2.95 years
      --  
Volatility
    338 %     --  
Expected dividends
    0.0 %     --  

 
10

 
 
NOTE 9 – ACQUISITIONS

Stereo Live

On May 21, 2012, the Company acquired from Michael Long and Surain Adyanthaya 100% ownership of Stereo Live, LLC, a Texas limited liability company (“Stereo Live”), in exchange for the issuance of one share of stock to each of Messrs. Long and Adyanthaya and the agreement of the Company to indemnify Messrs. Long and Adyanthaya against any obligations of Stereo Live that may have been guaranteed by those individuals. Messrs. Long and Adyanthaya are the principal shareholders of the Company.

SEC S-X Regulation 210.3-05 guideline states if an acquired business is under common control or management; the financial statement presentation shall be presented on a combined basis for the period they are under common control.  Based on this guideline the financials of the Company and Stereo Live have been combined in this report.

Full Access

On September 13, 2012 the Company purchased from two individuals Full Access, a promotions and production business in the Dallas, Texas market. Under terms of the agreement the Company paid the individuals $300,000 cash plus issued 1,000,000 shares of common stock with a value of $290,000 for a total purchase price of $590,000.

As part of the terms of the purchase of Full Access, the Company entered into a three year employment agreement with one of the sellers. The Company agreed to pay the individual $50,000 per year in salary plus 20% of the net profit from events produced and promoted in the Dallas market.

The Company also entered into a two year advisory consulting agreement with the second seller. Under the terms of the consulting agreement, the Company agreed to pay 10% of the net received from events produced and promoted in the Dallas market.

NOTE 10 – RELATED PARTY TRANSACTIONS

On May 21, 2012, the Company acquired Stereo Live.  See “Note 1 – Organization and Basis of Presentation – Stereo Live Acquisition” above.  The owners of Stereo Live are the controlling shareholders of the Company.

Prior to the acquisition of Stereo Live, the Company paid certain amounts to Stereo Live relative to the use of Stereo Live facilities to host events promoted by the Company and made certain loans to Stereo Live. At the time of the acquisition, Stereo Live was indebted to the Company in the amount of $151,500.

 
11

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

This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in our filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.

Explanatory Note

On July 31, 2011, Night Culture, Inc., a Texas corporation (“Night Culture - Texas”), and its shareholders entered into a Share Exchange Agreement (the “Exchange”) with a public shell company, XXX Acquisition Corp. (“XXX Acquisition”) pursuant to which XXX Acquisition acquired all of the shares of Night Culture – Texas from its shareholders and the shareholders of Night Culture – Texas became the controlling shareholders of XXX Acquisition. Such Exchange caused Night Culture – Texas to become a wholly-owned subsidiary of XXX Acquisition. Subsequently, the name of XXX Acquisition was changed to NightCulture, Inc. The Exchange is being accounted for as a reverse-merger and recapitalization and Night Culture – Texas is considered the accounting acquirer for accounting purposes and XXX Acquisition the acquired company. The business of Night Culture - Texas became the business of XXX Acquisition. Consequently, the assets and liabilities and the operations reflected in the historical financial statements prior to the Exchange are those of Night Culture – Texas and are recorded at the historical cost basis of Night Culture – Texas.

On May 21, 2012, the Company acquired from Michael Long and Surain Adyanthaya 100% ownership of Stereo Live, LLC, a Texas limited liability company (“Stereo Live”), in exchange for the issuance of one share of stock to each of Messrs. Long and Adyanthaya and the agreement of the Company to indemnify Messrs. Long and Adyanthaya against any obligations of Stereo Live that may have been guaranteed by those individuals. Stereo Live is the owner/operator of a live music venue located at 6400 Richmond Avenue, Houston, Texas.  Messrs. Long and Adyanthaya are the principal shareholders of the Company.

On September 12, 2012 the Company purchased from two non-related parties Full Access a promotion and production business in the Dallas, Texas market. The Company paid the individuals an aggregate of $300,000 cash plus common stock of the Company valued at $290,000 at date of acquisition for a total purchase price of $590,000.

The accompanying financial statements reflect the consolidated operating results of the Company, other than Full Access, for all periods presented and include the operating results of Full Access from and after September 12, 2012.

Unless indicated otherwise, or the context otherwise requires, references in this report to “NightCulture,” the “Company,” “we,” “us” and “our” or similar terms are to NightCulture, Inc. (formerly XXX Acquisition) and its consolidated subsidiaries in reference to dates subsequent to the Exchange and to Night Culture – Texas in reference to dates prior to the Exchange

Overview

Our principal line of business is promoting and producing, and selling merchandise at, live concerts, primarily in the Electronic Dance Music (EDM) genre and, since May 2012, hosting entertainment events at our Stereo Live venue. Since 2009, we have promoted and/or produced in excess of 200 live concerts. To date, we have organized events principally in Houston, San Antonio, Austin and Oklahoma City and, with the acquisition of Full Access, in Dallas.
 
 
12

 

Our revenues are principally derived from ticket sales to events that we promote and produce for which we typically receive a negotiated percentage of the ticket revenues. We typically act as agent for acts and recognize only our net share of revenues from ticket sales. In situations where we act as principal in promoting an event and take on the risks and rewards of such event we will recognize the gross revenues from ticket sales. We may also derive additional revenues associated with events that we promote and produce, including negotiated portions of revenues from merchandising, concessions and promotional opportunities.

Commencing with our acquisition of Stereo Live in May 2012, we also derive revenues from venue rentals, beverage sales and other related fees and charges derived from operation of our Stereo Live venue.

Our principal costs of generating revenues are direct costs associated with promotion and production of events, including, but not limited to, venue costs, advertising, ticketing agency costs and costs of event support personnel.  With our acquisition of Stereo Live, our principal costs also include costs of beverage sales, venue lease expense and venue operating personnel.

2012 Developments

During the nine months ended September 30, 2012, the following events affected our financial position and results of operations:

Conversion of Debentures.  All outstanding debentures issued during 2011 (the “2011 Debentures”), in the principal amount of $480,818 plus accrued interest in the amount of $20,745, were converted into an aggregate of 2,869,178 shares of our common stock.

Issuance of Convertible Debentures and Warrants. On September 12, 2012, we received $500,000 in exchange for the issuance of $500,000 of convertible debentures (the “2012 Debentures”) plus warrants (the “2012 Warrants”) to purchase up to 25,000,000 shares of common stock.

Recording of Derivative Liabilities.  During the nine months period, our stock began trading on a public market and we recorded as a derivative liability, the embedded derivative identified in the 2011 Debentures and associated warrants in the amount of $118,211.

Stereo Live Acquisition.  On May 21, 2012, we acquired 100% ownership of Stereo Live, an entertainment venue operator, from our two principal shareholders in exchange for an aggregate of two shares of common stock.  As a result of the acquisition, operating results of Stereo Live are included in our consolidated statements of operations and cash flows and intercompany amounts have been eliminated in consolidation.

Full Access Acquisition.    On September 12, 2012, we acquired from two non-related parties Full Access, a production and promotion business in the Dallas market.  The operations of Full Access are included in our consolidated financial statements for the period beginning September 12, 2012 and after.

Results of Operations

Revenue

Revenues for the three and nine months ended September 30, 2012 were $483,804 and $1,731,877, compared to $386,137 and $1,026,928 during the same periods in 2011. The increase in revenues was attributable to expanded concert promotion efforts and increased revenues from the operation of the company and the addition of revenues from Stereo Live.

 
13

 

Direct Costs

Direct costs were $234,622 and $707,477 for the three and nine months ended September 30, 2012, a decrease of 13% for three months and an increase of 23% for the nine months, respectively, compared to $269,501 and $540,727 for the same periods in 2011. As a percentage of revenues direct costs were 48.5% and 40.8% in the 2012 quarter and nine month periods compared to 69.7% and 52.6% in same period in 2011.  The change in direct cost as a percentage of sales in 2012 over 2011 was due to lower production costs as related to higher revenue in 2012.

The principal direct costs of the two nine months periods were as follows:

   
Nine Months Ended
September 30,
 
 
 
2012
   
2011
 
Promotion
  $ 64,874     $ 99,681  
Talent
    131,508       93,423  
Production
    512,672       231,153  
Beverages
    131,578       116,470  
    $ 707,477     $ 540,727  

General and Administrative Expenses

General and administrative expense for the three and nine months ended September 30, 2012 were $371,522 and $1,210,992 compared to $354,389 and $764,238 for the same periods in 2011.  The increase in general and administrative expense was attributable to increased staffing, cost of administration and other investments to support our planned growth initiatives. The principal general and administrative expenses for the nine month periods were as follows:

   
Nine Months Ended
September 30,
 
   
2012
   
2011
 
Wages
  $ 276,678     $ 161,223  
Legal and Accounting
    115,066       42,415  
Venue
    604,200       409,270  
Travel & Entertainment
    6,532       8,617  
Office and other expenses
    208,516       142,713  
    $ 1,210,992     $ 764,238  

Depreciation and Amortization

Depreciation and amortization expense incurred in the three and nine months ended September 30, 2012 was $4,599 and $13,517 compared to $2,832 and $14,798 in 2011.  The variance in depreciation and amortization expense was attributable to additional fixed assets being depreciated in 2012 while certain assets had reached their length of life for depreciation.

Other Income (Expense)

Other income (expense) consists principally of interest expense and gain/ (loss) on changes in the value of derivative liability associated with outstanding warrants. Other income and expense, net, totaled income of $22,308 for the three month period and expense of $175,652 for the nine months ending September 30, 2012 compared to $22,208 and $58,208 in the same periods in 2011. The change in other income (expense) was attributable to the change in fair value of derivative liabilities to reflect the calculated value less the initial measurement of the derivative liability on the outstanding debentures and warrants in 2012 with none outstanding in 2011.
 
 
14

 

Financial Condition

Cash, Cash Flows and Working Capital

At September 30, 2012, we had current assets of $20,352, current liabilities of $1,439,609 and a working capital deficit of $1,419,257 as compared to current assets of $24,492, current liabilities of $1,325,326 and a working capital deficit of $1,243,750 at December 31, 2011.

Net cash used in operations for the nine months ending September 30, 2012 was $207,304 compared to net cash used in operations of $289,890 provided in the same period in 2011.   The decrease in cash used in operations was principally attributable to non-cash charges associated with derivative liabilities during the 2012 period which more than offset the increase in loss for the period.

Net cash used in investing activities for the period ending September 30, 2012 was $300,000 compared to zero for the same period in 2011.  Cash used in investing activities is the result of the acquisition of Full Access.

Net cash provided by financing activities during the nine months ended September 30, 2012 was $500,000 compared to $328,975 for the same period in 2011. Financing activities in 2012 reflected the placement of the 2012 Debentures and 2012 Warrants for net proceeds of $500,000 while financing activities in 2011 reflected repayment of certain advances of $21,025 and placement of 2011 Debentures and warrants for net proceeds of $350,000.

Liquidity and Capital Resources

Our principal requirement for capital is to fund our operating deficits and growth initiatives and satisfy our contractual obligations and outstanding debt and payables.

During 2011 and 2012, our operations were principally financed through proceeds from the issuance of convertible debentures and warrants. During 2011, we received $480,818 of proceeds from the issuance of 2011 Debentures and warrants.  During the nine months ended September 30, 2012, the 2011 Debentures were converted to common stock. During the quarter ended September 30, 2012, we received $500,000 of proceeds from the issuance of the 2012 Debentures and 2012 Warrants.

As we continued to operate at a loss during the nine months ended September 30, 2012, we believe that we will be required to either improve profitability and operating cash flow or to borrow additional funds or otherwise secure additional financing, or both, to support our operations during the balance of 2012 and beyond.  Except as described below regarding our equity line of credit, we do not presently have any commitments to provide financing, if needed, to support our operations.

In 2011, we established an equity line of credit in an amount up to $1,000,000 with Calm Seas. Pursuant to the terms of the equity line of credit, commencing on the effective date of the Exchange and continuing for a period of 24 months, we will have the right to put to Calm Seas shares of our common stock on a monthly basis at a price equal to 80% of the market price of our common stock.  Monthly draws under the equity line of credit facility are limited to the lesser of (1) $75,000 or (2) 150% of the average daily trading in our common stock multiplied by the average daily closing price of our common stock for the 3 trading days immediately preceding delivery of a notice of our intent to draw on the facility; provided, however, that our right to draw on the facility will be reduced as to any specific draw to the extent that the lowest bid price of our common stock during the 5 trading days following a draw is less than 75% of the average closing bid price of our common stock for the 10 trading days prior to the draw. In connection with the establishment of the equity line of credit, we have undertaken to file with the SEC a registration statement registering the shares issuable under the facility.  To date, no registration statement has been filed relative to the equity line of credit and there is no assurance that we will ever be able to access funds under that facility or that we will be able secure other capital needed to support our operations.
 
 
15

 

Debt

On September 12, 2012, we issued $500,000 of 2012 Debentures.  The 2012 Debentures mature September 11, 2015 and accrue interest at 5% per annum with a default rate of 12% per annum. The 2012 Debentures are convertible into common stock of the Company at 50% of the average closing price of the 20 day trading price ending prior to the date of conversion into the Company common stock.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party obligations at September 30, 2012.

Inflation

We believe that inflation has not had a significant impact on our operations since inception.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation as of September 30, 2012 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2012. Such conclusion reflects the identification as material weakness: (1) the lack of written procedures and job descriptions within the Company and (2) our principal accounting officer’s lack accounting expertise.  Until we are able to remedy these material weaknesses, we have engaged third party consultants and accounting firm to assist with financial reporting.
 
Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
16

 

PART II – OTHER INFORMATION


Item 5. Other Information

In September 2012, Marcia Rosenbaum resigned as a director of the Company.

Item 6. Exhibits

Exhibit No.
 
Description
     
31
 
Certification of CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32
 
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
101.INS **
 
XBRL Instance Document
     
101.SCH **
 
XBRL Taxonomy Extension Schema Document
     
101.CAL **
 
XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE **
 
XBRL Taxonomy Extension Presentation Linkbase Document

** 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.

 
 

 


 
17

 
 
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
  NIGHTCULTURE, INC.  
       
Dated: November 12, 2012  
By:
/s/ Michael Long  
    Michael Long  
    Chief Executive Officer  
   
(Acting Principal Financial and Accounting Officer and
Duly Authorized Officer)
 

 
18