Attached files
| file | filename |
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| EXCEL - IDEA: XBRL DOCUMENT - NightCulture, Inc. | Financial_Report.xls |
| EX-31 - CERTIFICATION - NightCulture, Inc. | nght_ex31.htm |
| EX-32 - CERTIFICATION - NightCulture, Inc. | nght_ex32.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2013
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______________ to ______________
Commission File Number: 000-49648
NIGHTCULTURE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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73-1554122
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(State of Incorporation)
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(IRS Employer Identification No.)
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6400 Richmond Avenue, Houston, TX
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77057
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(Address of Principal Executive Offices)
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(Zip Code)
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(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 T 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.
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Large accelerated filer
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o |
Accelerated filed
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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 14, 2013, the Registrant had 57,768,965 shares of common stock issued and outstanding.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | |||||
| Item 1. |
Financial Statement (Unaudited)
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||||
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Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012
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3 | ||||
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Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012
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4 | ||||
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Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012
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5 | ||||
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Notes to Consolidated Financial Statement
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6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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10 | |||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risks
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13 | |||
| Item 4. |
Controls and Procedures
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13 | |||
| PART II – OTHER INFORMATION | |||||
| Item 5. |
Other Information
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14 | |||
| Item 6. |
Exhibits
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14 | |||
| SIGNATURES | 15 | ||||
2
PART I – FINANCIAL INFORMATION
Item 1: Financial Statement.
NIGHTCULTURE, INC.
CONSOLIDATED BALANCE SHEETS
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September 30,
2013
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December 31,
2012
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|||||||
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(Unaudited)
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||||||||
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 52,318 | $ | 31,030 | ||||
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Inventory
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9,882 | 22,099 | ||||||
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Prepaid expenses
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109,000 | -- | ||||||
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Total current assets
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171,200 | 53,129 | ||||||
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Fixed assets, net of depreciation of $32,444 and $27,640 respectively
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4,829 | 9,634 | ||||||
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Intangible asset net of amortization of $52,440 and $22,968, respectively
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343,896 | 373,368 | ||||||
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Goodwill
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238,674 | 238,674 | ||||||
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Total assets
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758,599 | $ | 674,805 | |||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)
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Current liabilities:
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Accounts payable and accrued expense
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$ | 438,164 | $ | 379,914 | ||||
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Accrued interest
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71,121 | 487,135 | ||||||
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Deferred income
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-- | 50,000 | ||||||
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Advance –related party
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22,500 | 22,500 | ||||||
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Derivative liability
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2,522,873 | 5,006,837 | ||||||
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Notes payable
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420,000 | 734,349 | ||||||
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Total current liabilities
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3,474,658 | 6,680,735 | ||||||
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Convertible debentures- net of discount of $324,772 and $449,772, respectively
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175,228 | 50,228 | ||||||
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Total liabilities
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3,649,886 | 6,730,963 | ||||||
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Stockholders’ deficit:
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Preferred stock, $0.001 par value, 10,000,000 authorized, none outstanding
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-- | -- | ||||||
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Common stock, $0.001 par value, 100,000,000 authorized, 57,923,615 and 53,072,325 issued and outstanding, respectively
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57,923 | 53,072 | ||||||
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Additional paid-in capital
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4,769,741 | 4,224,412 | ||||||
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Accumulated deficit
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(7,718,951 | ) | (10,333,642 | ) | ||||
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Total stockholders’ deficit
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(2,891,287 | ) | (6,056,158 | ) | ||||
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Total liabilities and stockholders’ deficit
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$ | 758,599 | $ | 674,805 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
NIGHTCULTURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2013
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2012
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2013
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2012
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(Restated)
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(Restated)
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Revenue
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$ | 1,144,918 | $ | 1,046,948 | $ | 3,441,842 | 2,661,949 | |||||||||
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Direct costs
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609,775 | 798,583 | 1,828,692 | 1,637,549 | ||||||||||||
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Gross profit
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535,143 | 248,365 | 1,613,150 | 1,024,400 | ||||||||||||
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Operating expenses:
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Depreciation and amortization expense
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10,992 | 4,604 | 34,276 | 13,517 | ||||||||||||
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General and administrative expense
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601,642 | 370,645 | 1,584,144 | 1,210,994 | ||||||||||||
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Total operating expenses
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612,634 | 375,249 | 1,618,420 | 1,224,511 | ||||||||||||
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Loss from operations
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(77,491 | ) | (126,884 | ) | (5,270 | ) | (200,111 | ) | ||||||||
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Other income (expense)
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Other income
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1 | -- | 2,023 | -- | ||||||||||||
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Loss on equipment
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-- | -- | -- | (900 | ) | |||||||||||
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Interest expense
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(65,803 | ) | (19,268 | ) | (197,330 | ) | (56,541 | ) | ||||||||
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Gain on settlement of debt
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875,934 | -- | 875,934 | - | ||||||||||||
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Gain (loss) on derivative liabilities
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(296,193 | ) | (6,998,656 | ) | 1,939,334 | (6,633,030 | ) | |||||||||
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Total other income (expense)
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513,939 | (7,017,924 | ) | 2,619,961 | (6,690,471 | ) | ||||||||||
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Net income (loss)
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$ | 436,448 | $ | (7,144,808 | ) | $ | 2,614,691 | $ | (6,890,582 | ) | ||||||
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Net income (loss) per share : Basic
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$ | 0.01 | $ | (0.14 | ) | $ | 0.05 | $ | (0.14 | ) | ||||||
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Net income (loss) per share : Diluted
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$ | 0.01 | $ | (0.14 | ) | $ | 0.03 | $ | (0.14 | ) | ||||||
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Weighted average number of shares outstanding:
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Basic
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57,798,340 | 49,509,134 | 55,584,746 | 48,589,053 | ||||||||||||
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Diluted
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109,370,775 | 49,509,134 | 107,157,181 | 48,589,053 | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
NIGHTCULTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine Months Ended September 30,
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2013
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2012
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| (Restated) | ||||||||
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Cash flows from operating activities:
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Net income (loss)
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$ | 2,614,691 | $ | (6,890,582 | ) | |||
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
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Depreciation and amortization expense
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34,276 | 13,517 | ||||||
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Gain on settlement of debt and accrued interest
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(875,934 | ) | -- | |||||
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Amortization of debt discount
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125,000 | -- | ||||||
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Loss (gain) on change in fair value of derivative liabilities
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(1,939,334 | ) | 6,633,030 | |||||
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Loss on equipment
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-- | 900 | ||||||
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Changes in operating assets and liabilities:
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Inventory
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12,217 | (3,164 | ) | |||||
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Accounts payable and accrued expense
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129,372 | 38,903 | ||||||
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Prepaid expenses and other assets
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(109,000 | ) | 92 | |||||
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Deferred income
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(50,000 | ) | -- | |||||
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Net cash provided by (used in) operating activities
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(58,712 | ) | (207,304 | ) | ||||
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Cash flows from investing activities:
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Cash paid for purchase of Full Access
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-- | (300,000 | ) | |||||
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Cash flows from financing activities:
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Proceeds from borrowings on debt
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80,000 | 500,000 | ||||||
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Net increase (decrease) in cash
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21,288 | (7,304 | ) | |||||
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Cash – beginning of period
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31,030 | 13,105 | ||||||
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Cash – end of period
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$ | 52,318 | $ | 5,801 | ||||
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SUPPLEMENT DISCLOSURES:
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Interest paid
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$ | -- | $ | -- | ||||
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Income taxes paid
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$ | -- | $ | -- | ||||
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NONCASH INVESTING AND FINANCING ACTIVITIES:
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Derivative write off due to conversion
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$ | -- | $ | 732,723 | ||||
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Recognition of new derivative liabilities
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$ | -- | $ | 5,149,437 | ||||
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Stock issued for acquisition of Full Access
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-- | 290,000 | ||||||
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Derivative write off due to warrant exercise
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$ | 544,630 | $ | -- | ||||
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Stock issued for conversion of warrants
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$ | 4,701 | -- | |||||
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Stock issued for debt and accrued interest
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$ | 5,550 | 528,836 | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
NIGHTCULTURE, INC.
NOTES TO CONSOLIDATED 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.
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, 2012. 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, 2012 as reported on Form 10-K, have been omitted.
NOTE 2 – GOING CONCERN CONSIDERATIONS
As shown in the accompanying financial statements, the Company has a negative working capital of $3,303,458 for the period ending September 30, 2013. As of September 30, 2013, the Company reported an accumulated deficit of $7,718,951. The Company’s ability to generate net income and positive cash flows is dependent on the ability to grow its operating entity as well as the ability to raise additional capital. Management is following strategic plans to accomplish these objectives, but success is not guaranteed. 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.
6
NOTE 3 – DERIVATIVE INSTRUMENTS
During 2012 the Company issued instruments that require liability classification under ASC 815. These instruments are measured at fair value at the end of each reporting period.
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:
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Level 1 –
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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.
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Level 2 –
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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.
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Level 3 –
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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.
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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, 2013.
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Recurring Fair Value Measures
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Level 1
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Level 2
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Level 3
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Total
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LIABILITIES:
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Derivative liabilities as of December 31, 2012
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$ | 5,006,837 | $ | 5,006,837 | ||||||||||||
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Derivative write off due to warrant exercise
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(544,630 | ) | (544,630 | ) | ||||||||||||
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Change in fair value of derivative liability
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-- | -- | (1,939,334 | ) | (1,939,334 | ) | ||||||||||
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Derivative liability as of September 30, 2013
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-- | -- | 2,522,873 | 2,522,873 | ||||||||||||
7
NOTE 4 – RELATED PARTY TRANSACTIONS
For the period ended September 30, 2013, there are net advances owed to a related party of $22,500.
NOTE 5 – NOTES PAYABLE
On August 25, 2013, the Company borrowed $80,000 from a third party. The note is due on November 15, 2013, carries an interest rate of 8%, and the principal to be paid back is $89,600.
NOTE 6 - EQUITY
On April 1, 2013 the Company issued 1,852,004 shares of common stock in exchange for 3,647,996 warrants, which were issued in 2011. The conversion of the warrants was a cashless conversion.
On May 6, 2013 the Company issued 841,820 shares of common stock in exchange for 2,500,000 warrants, which were issued in 2011. The conversion of the warrants was a cashless conversion.
On June 11, 2013 the Company issued 2,007,466 shares of common stock in exchange for 5,991,784 warrants, which were issued in 2011. The conversion of the warrants was a cashless conversion.
On September 15, 2013, the Company issued 150,000 shares of common stock in exchange for $487,135 of accrued interest and $394,349 of notes payable. The fair value of the common stock was valued at $5,550. This transaction resulted in a gain on settlement of debt and accrued interest of $875,934.
NOTE 7 – RESTATEMENT
During 2011, the Company issued debt instruments that were convertible into common stock at price equal to 70% of the average closing price of the Company’s common stock. The conversion options embedded in these instruments contain no explicit limit to the number of shares to be issued upon settlement and as a result are classified as liabilities under ASC 815. Additionally, because the number of shares to be issued upon settlement is indeterminate, all other share settle-able instruments must also be classified as liabilities. Originally, the Company accounted for other share settle-able instruments in equity. During 2013, management discovered the error and is restating its financial statements for the nine months ended September 30, 2012 to correct this error.
8
During the nine month period ended September 30, 2012, the Company recognized an additional loss on derivatives of $6,514,819 as a result of the error noted above.
During 2011, the Company recognized revenues and cost of sales on a cash basis, but worked regularly with other promoters and shared the costs and revenues earned for each event. This often resulted in netting of revenues and direct costs as of September 30, 2013. During 2013, management discovered the error and is restating its financial statements for the nine months ended September 30, 2012 to correct this error.
During the nine month period ended September 30, 2012, the Company recognized additional revenues and direct costs of $930,072 as a result of the error noted above.
NOTE 8 – FULL ACCESS ACQUISITION
On September 13, 2012, the Company purchased Full Access, a promotions and production business in the Dallas, Texas market. Under the purchase agreement, it was represented that there were no outstanding liabilities that the Company would assume. On July 2013, a vendor has contacted the Company claiming amounts owed of $142,000, which were accrued prior to the Company’s purchase of Full Access. The Company has an ongoing relationship with this vendor and has gross receivables outstanding of $114,981 as of September 30, 2013. The vendor will withhold payment of the receivables until the $142,000 claim has been paid. These receivable amounts have been netted against the $142,000 claim, resulting in a payable of $27,019 to the vendor as of September 30, 2013. The Company has filed a petition against the sellers of Full Access to pay the $142,000 in full.
9
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.
10
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.
Results of Operations
Revenue
Revenues for the three and nine months ended September 30, 2013 $1,144,918 and $3,441,842, compared to $1,046,948 and $2,661,949 during the same periods in 2012. The increase in revenues was attributable to expanded concert promotion efforts and increased revenues from the operation of the company plus addition of revenues from Stereo Live and the Dallas market that acquired in September 2012.
Direct Costs
Direct costs were $609,775 and $1,828,692 for the three and nine months ended September 30, 2013, compared to $798,583 and $1,637,549 for the same periods in 2012. As a percentage of revenues, direct costs were 53% and 53% in the 2013 three and nine month periods compared to 76% and 61.5% in same period in 2012. The change in direct cost as a percentage of sales in 2013 over 2012 was due to higher production costs as related to higher revenue in 2013.
General and Administrative Expenses
General and administrative expense for the three and nine months ended September 30, 2013 was $601,642 and $1,584,144 compared to $370,645 and $1,210,994 for the same periods in 2012. The increase in general and administrative expense was attributable to increased staffing, cost of administration and other investments to support our planned growth initiatives.
Depreciation and Amortization
Depreciation and amortization expense incurred in the three and nine months ended September 30, 2013 were $10,992 and $34,276 compared to $4,604 and $13,517 in 2012. The variance in depreciation and amortization expense was attributable to additional amortization of the markets acquired by the Company in 2013.
11
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 $513,939 and $2,619,961 for the three and nine months ended September 30, 2013 and expense of $7,017,924 and $6,690,471 in the same periods in 2012. The major 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 2013 and 2012 plus interest costs in the same periods.
Financial Condition
Cash, Cash Flows and Working Capital
At September 30, 2013, we had current assets of $171,200, current liabilities of $ 3,474,658 and a working capital deficit of $3,303,458 as compared to current assets of $53,129, current liabilities of $6,680,735 and a working capital deficit of $6,627,606 at December 31, 2012. Current liabilities largest liability was the derivative liability, which was $2,522,873 as of September30, 2013 compared to $5,006,837 as of December 31, 2012.
Net cash used in operations for the nine months ending September 30, 2013 was $58,712 compared to net cash used of $ 207,304 in the same period in 2012. The increase in cash used in operations was principally attributable to the decrease in the net loss plus non-cash charges associated with derivative liabilities during the period and the decreases in cash related to deferred revenue, prepaid rent and increased inventory and lower accounts payable.
Net cash used in investing activities for the period ending September 30, 2013 was zero compared to $300,000 for the same period in 2012.
Net cash provided by financing activities during the nine months ended September 30, 2013 was $80,000 compared to $500,000 for the same period in 2012.
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.
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 2013 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.
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Debt
In January 2007, the Company issued a promissory note that was repayable, with interest accruing at 10%, on the earlier of December 31, 2007 or upon receipt of proceeds from a public offering of shares. During 2009 the Company agreed to convert $258,378 of debt to 56,786,461 shares of common stock. During the nine months ended September 30, 2013, the company agreed to covert $881,484 of the debt into 150,000 shares of common stock, with $300,000 remaining due. The company recognized a gain on the conversion of debt of $875,934. As of September 30, 2013, $300,000 of the principal of the note is left outstanding and non-interest bearing.
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.
During 2012, the Company borrowed $100,000 from a third party, due on demand bearing no interest. $60,000 was repaid leaving a balance due of $40,000 as of September 30, 2013.
Total notes payable as of September 30, 2013 were $595,228.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements or guarantees of third party obligations at September 30, 2013.
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, 2013 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, 2013. 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, 2013 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 5: Other Information
None.
Item 6: Exhibits
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Exhibit No.
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Description
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|
|
31
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Certification of CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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|
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32
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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
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|
101.INS **
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XBRL Instance Document
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|
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101.SCH **
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XBRL Taxonomy Extension Schema Document
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|
|
101.CAL **
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XBRL Taxonomy Extension Calculation Linkbase Document
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|
|
101.DEF **
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XBRL Taxonomy Extension Definition Linkbase Document
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|
|
101.LAB **
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XBRL Taxonomy Extension Label Linkbase Document
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|
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101.PRE **
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XBRL Taxonomy Extension Presentation Linkbase Document
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___________
** 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.
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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. | |||
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Dated: November 19, 2013
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By:
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/s/ Michael Long | |
| Michael Long | |||
| Chief Executive Officer | |||
| (Acting Principal Financial and Accounting Officer and Duly Authorized Officer) | |||
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