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, 2014

 

OR

 

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

 

For the transition period from ______________ to ______________

 

Commission File Number: 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	¨	Accelerated filed	¨
Non-accelerated filer	¨	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, 2014, the Registrant had 65,958,931 shares of common stock issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statement (Unaudited)
	Unaudited Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	3
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013	4
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	15
Item 4.	Controls and Procedures	15
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity and Use of Proceeds	16
Item 3.	Default upon Senior Securities	16
Item 4.	Mine Safety Information	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
SIGNATURES		17

 

2

 

PART I – FINANCIAL INFORMATION

 

ITEM: 1 FINANCIAL STATEMENTS

 

NIGHTCULTURE, INC. 

CONSOLIDATED BALANCE SHEETS 

(Unaudited)

 

		September 30, 2014				December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents		$	115,048			$	52,691
Receivables			11,838				56,136
Inventory			27,364				15,506
Prepaid expenses			12,938				12,938
Indemnification asset			--				76,921
Total current assets			167,188				214,192
Fixed assets, net of depreciation of $55,154 and $33,613			184,765				3,660
Intangible assets, net of accumulated amortization of $91,736 and $62,264			324,600				334,072
Goodwill			238,674				238,674
Total assets		$	915,227			$	790,598
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expense		$	238,006			$	194,494
Accrued interest			83,797				67,771
Bank overdraft			--				15,010
Deferred income			--				3,558
Accrued salaries to related parties			327,000				183,000
Advances from related parties			47,060				22,500
Derivative liability			1,714,028				2,147,814
Notes payable			--				340,000
Convertible debentures, net of unamortized discounts of $135,689 and $0			285,571				--
Short term debt			69,422				--
Total current liabilities			2,764,884				2,974,147
Long term debt			81,478				--
Convertible debentures, net of unamortized discounts of $0 and $283,106			--				216,894
Total liabilities			2,846,362				3,191,041
Stockholders’ deficit:
Preferred stock, $0.001 par value, 10,000,000 authorized, none issued and outstanding			--				--
Common stock, $0.001 par value, 100,000,000 authorized, 65,958,931 and
57,923,615 issued and outstanding			65,959				57,923
Additional paid-in capital			5,678,239				4,882,495
Accumulated deficit			(7,675,333	)			(7,340,861	)
Total stockholders’ deficit			(1,931,135	)			(2,400,443	)
Total liabilities and stockholders’ deficit		$	915,227			$	790,598

 

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,
		2014				2013				2014				2013
Revenue		$	1,396,015			$	1,144,918			$	4,316,517			$	3,441,842
Direct costs			950,692				609,775				2,548,596				1,828,692
Gross profit			445,323				535,143				1,767,921				1,613,150
Operating expenses:
Depreciation and amortization expense			27,444				10,992				51,012				34,276
General and administrative expense			596,664				601,642				1,918,346				1,584,144
Total operating expenses			624,108				612,634				1,969,358				1,618,420
Loss from operations			(178,785	)			(77,491	)			(201,437	)			(5,270	)
Other income (expense)
Other income			--				1				--				2,023
Gain on debt forgiveness and settlement			--				875,934				190,000				875,934
Interest expense			(49,871	)			(65,803	)			(180,491	)			(197,330	)
(Loss) Gain on change in fair value of derivative liabilities			6,536				(296,193	)			(141,254	)			1,939,334
Other expense			(185	)			--				(1,290	)			--
Total other income (expense)			(43,520	)			513,939				(133,035	)			2,619,961
Net (loss) income		$	(222,305	)		$	436,448			$	(334,472	)		$	2,614,691
Net (loss) income per share: Basic		$	(0.00	)		$	0.01			$	(0.01	)		$	0.05
Net (loss) income per share: Diluted		$	(0.00	)		$	0.01			$	(0.01	)		$	0.03
Weighted average number of common shares outstanding:
Basic			65,958,931				57,798,340				63,908,937				55,584,746
Diluted			65,958,931				109,370,775				63,908,937				107,157,181

 

 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,
			2014				2013
Cash flows from operating activities:
Net (loss) income		$	(334,472	)		$	2,614,691
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization expense			51,012				34,276
Amortization of debt discounts			147,417				125,000
Loss (Gain) on change in fair value of derivative liabilities			141,254				(1,939,334	)
Write-off of indemnification asset			76,921
Gain on settlement of debt and accrued interest			(150,000	)			(875,934	)
Gain on debt forgiveness			(40,000	)			--
Changes in operating assets and liabilities:
Accounts receivable			44,298				--
Inventory			(11,858	)			12,217
Accrued salaries to related parties			144,000				--
Accounts payable and accrued expense			60,480				129,372
Prepaid expenses and other assets			--				(109,000	)
Deferred income			(4,500	)			(50,000	)
Net cash provided by (used in) operating activities			124,552				(58,712	)
Cash flows used in investing activities
Purchase of intangible assets			(20,000	)			--
Cash paid for fixed assets			(78,653	)			--
Net cash used in investing activities			(98,653	)			--
Cash flows from financing activities
Bank indebtedness			(15,010	)			--
Advances from related parties			24,560				--
Advances from working capital loan			50,000				--
Proceeds from short term debt			--				80,000
Repayment on loans payable			(23,092	)			--
Net cash flows provided by financing activities			36,458				80,000
Net increase (decrease) in cash			62,357				21,288
Cash – beginning of period			52,691				31,030
Cash – end of period		$	115,048			$	52,318
SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid		$	17,048			$	--
Income taxes paid			--				--
NONCASH INVESTING AND FINANCING ACTIVITIES:
Derivative write-off due to conversion of debt		$	142,242			$	--
Derivative write-off due to warrant exercises			432,798				544,630
Common stock issued for exercise of warrants			1,950				4,701
Common stock issued for conversion of convertible debt			78,740				--
Common stock issued for settlement of debt			150,000				5,550
Purchase of fixed assets through loans			123,992				--

 

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 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. In May 2012, the Company acquired Stereo Live, a related event venue operator, as a wholly-owned subsidiary. In September 2012, the Company acquired the assets of Full Access, an event promotion operator in Dallas, Texas.

 

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, 2013. 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, 2013 as reported on Form 10-K, have been omitted.

 

NOTE 2 – GOING CONCERN

 

As shown in the accompanying financial statements, the Company has a negative working capital of $2,597,696 and an accumulated deficit of $7,675,333, as of September 30, 2014. 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:

 

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.

 

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, 2014 and December 31, 2013:

 

Recurring Fair Value Measures		Level 1				Level 2				Level 3				Total
LIABILITIES:
Derivative liabilities as of September 30, 2014			--				--			$	1,714,028			$	1,714,028
Derivative liabilities as of December 31, 2013			--				--			$	2,147,814			$	2,147,814

 

The below table represents the change in the fair value of the derivative liabilities during the nine months ended September 30, 2014:

 

Fair value of derivatives, December 31, 2013		$	2,147,814
Derivative write-off due to conversion of debt			(142,242	)
Derivative write-off due to warrant exercises			(432,798	)
Change in fair value of derivative liability			141,254
Fair value of derivatives, September 30, 2014		$	1,714,028

 

7

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

During the nine months ended September 30, 2014 the Company received advances from the Chief Executive Officer of the Company of $24,560. As of September 30, 2014 and December 31, 2013, total advances owed to related parties were $47,060 and $22,500, respectively. These advances are unsecured, bear no interest and are due on demand.

 

As of September 30, 2014 and December 31, 2013, the Company had accrued salaries owed to related parties of $327,000 and $183,000, respectively.

 

NOTE 5 – DEBT

 

Convertible Debentures

 

On September 12, 2012 the Company issued $500,000 of convertible 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. On January 28, 2014 the Company issued 3,086,029 for the conversion of $15 of the convertible debt. As of September 30, 2014 and December 31, 2013, the outstanding principal balance under this convertible debt was $421,260 and $500,000, respectively. The embedded conversion option in these convertible debentures was accounted for as a derivative liability (see Note 3). As of September 30, 2014 and December 31, 2013, the unamortized discount on these convertible notes associated with the derivative liability was $135,689 and $283,106. During the nine months ended September 30, 2014, amortization of the discount totaled $147,417.

 

Notes Payable

 

On May 28, 2014 the Company issued 3,000,000 shares of common stock to retire a note of $300,000. The shares were valued at market price on the respective date of issuance and the fair value of the shares was determined to be $150,000. The Company recorded a $150,000 gain on debt settlement as the nine months ended September 30, 2014. As part this agreement the Company paid $10 to the note holder for the forgiveness of a $40,000 note and the company recorded a $40,000 gain on debt forgiveness.

 

Other Debt

 

On July 2, 2014 Stereo Live a subsidiary of the Company entered into credit line facility and three equipment leases. The terms of the credit facilities and leases are as follows:

 

	1.	A $50,000 loan that is paid back to the lender at the rate of $273.81 per business day for 252 days for total payment of $69,000.12 including the $50,000 in principal and $19,000.12 in total interest. As of September 30, 2014 the balance of the note was $37,691.
	2.	An equipment lease of $32,799.75 payable over 48 months at $1, 024.47 per month for total payment of $49,174.56 including the principal amount of $32,799.75 and interest of $16,374.81.
	3.	An equipment lease of $58,942 payable over 48 months at $1,780.05 per month for total payment of $85,442.40 including the principal amount of $58,942 and interest of $26,500.40
	4.	An equipment lease of $32,250 payable over 44 months at $1,092.23 per month for total payments of $48,058.12 including the principal amount of $32,250 and interest of $15,808.12

 

The Company has accounted for the above transaction under ASC 640 - 30 “Capital Leases”. During the nine months ended September 30, 2014, $50,000 was recorded as advances from working capital loan and $123,992 was recorded as purchase of fixed assets through loans. Also the Company has made payment of $23,092 toward the principal balance during the nine months ended September 30, 2014. As of September 30, 2014 the balance due on the leases was $150,900, with $69,422 is recorded as short term debt and the remaining balance of $81,478 is recorded as long term debt.

 

The note and the leases are personally guaranteed by principals of the Company.

 

8

 

NOTE 6 - EQUITY

 

On January 15, 2014 the Company issued 1,949,287 shares of common stock in exchange for the cashless exercise of 9,401,120 warrants, which were originally issued in 2011.

 

On January 28, 2014, 2014 the Company issued 3,086,029 shares of common stock in exchange for the conversion of $78,740 of convertible debt that was originally issued in 2012 (see Note 5).

 

On May 28, 2014 the Company issued 3,000,000 shares of common stock in exchange for the cancellation of a $300,000 note (see Note 5).

 

NOTE 7 - INDEMINIFICATION AND INTANGIBLE ASSETS

 

On December 12, 2013 the Company received a default judgment in the District Court of Dallas Texas against a seller of the Dallas market (Full Access) for $135,104 plus legal fees of $7,000. The judgment is the result of a suit filed to collect a liability not disclosed by the seller at the time of purchase of the Dallas market. Subsequent to the discovery of this liability NightCulture has paid the creditor on behalf of the market seller and is reducing the indemnification asset by the amount earned each quarter by the seller per the sales contract. This resulted in a change in the purchase price allocation during 2013. The outstanding indemnification asset was $76,921 as of December 31, 2013. During the nine months ended September 30, 2014 the Company wrote-off the indemnification asset resulting in bad debt expense of $76,921 after reviewing the collectability of the asset.

 

On January 30, 2014 the Company purchased the balance of the San Antonio market for a total purchase price of $20,000 giving the Company 100% ownership in the market. $20,000 was paid during the nine months ended September 30, 2014.

 

NOTE 8 - WARRANTS

 

As of September 30, 2014 the Company has 25,000,000 warrants outstanding 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 warrants. The warrant holder may exercise these warrants on or before December 31, 2015.

 

The following table summarizes the warrant activity during the nine months ended September 30, 2014:

 

										Weighted
						Weighted				Average
						Average				Remaining				Number of
						Exercise				Contract				Warrants				Intrinsic
		Warrants				Price				Life				Exercisable				Value
Outstanding at December 31, 2013			34,401,120			$	0.024				1.73				34,401,120			$	560,723
Granted
Exercised			(9,401,120	)			0.034				--				(9,401,120	)			--
Forfeited or Cancelled			--				--				--				--				--
Outstanding at September 30, 2014			25,000,000				0.022				1.25				25,000,000			$	593,500

 

9

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERTIONS

 

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.

 

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.

 

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.

 

On January 30, 2014 the Company purchased the balance of the San Antonio market for $20,000.

 

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.

 

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.

 

10

 

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, 2014 was $1, 396,015 and $4,316,517 compared to $1,144,918 and $3,441,842 during the three and nine months ended September 30, 2013. 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 2013.

 

Direct Costs

 

Direct costs were $950,692 and $2,548,596for the three and nine months ended September 30, 2014 compared to $609,775 and $1,828,692 for the same periods in 2013. As a percentage of revenues, direct costs for the three and nine months periods were 68.1% and 59.0% % in the 2014 compared to 53.2% and 53.1% in same period in 2013. The change in direct cost as a percentage of sales in 2014 three month period over 2013 was due to higher sales volume while as the nine months period of 2014 was higher than the same period in 2013 due to higher production costs advertising and promotion cost as a percent of sales during the first quarter of 2014.

 

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

 

			Nine Months Ended September 30,
			2014				2013
Shows		$	1,928,246			$	1,486,404
Stereo Live Venue			56,779				38,718
Beverages			563,571				303,570
		$	2,548,596			$	1,828,692

 

11

 

General and Administrative Expenses

 

General and administrative expense for the three and nine months ended September 30, 2014 was $596,664 and $1,918,346 compared to $601,642 and $1,584,144 for the same periods in 2013. The increase in general and administrative expense was attributable to increased staffing, accrued salaries for related parties, higher cost of administration and other investments to support our planned growth initiatives. The principal general and administrative expenses for the three months period were as follows:

 

		Nine Months Ended September 30,
			2014				2013
Consulting and salaries		$	867,123			$	442,370
Legal and accounting			73,504				54,709
Venue			655,032				545,347
Travel and entertainment			10,201				2,355
Write-off of indemnification asset			76,921				4,829
Office and other expenses			235,565				534,534
		$	1,918,346			$	1,584,144

 

Depreciation and Amortization

 

Depreciation and amortization expense incurred in the three and nine month period ended September 30, 2014 was $27,444 and $51,012 compared to $10,992 and $34,276 in 2013. The increase in depreciation and amortization expense was attributable to added assets purchased and leased during the third quarter of 2014.

 

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 plus gains on debt forgiveness. Other income (expense) totaled $(43,520) and ($133,035) for the three month and nine months period verses other income of $513,939 and $2,619,961 in the same periods in 2013. The change for the nine month periods was mainly attributable to the change in fair value of derivative liabilities creating a loss of $141,254 in 2014 compared to a gain of $1,939,334 for the same period in 2013with the 2014 period offset by gain on debt forgiveness of $190,000 verse none in the nine month period in 2013.

 

Net Income (Loss)

 

The Company incurred a net loss of $222,305 and $334,472 for the three and nine month periods ended September 30, 2014 compared to net income of $436,448 and $2,614,691 for the same periods in 2013. The net loss for 2014 includes a loss of $59,894 attributed to the venue Beach Blanket Bingo which was held during the three month period ended September 30, 2014. Net income in 2013 can be attributed to the gain on debt forgiveness and the gain on derivative liability.

 

12

 

Financial Condition

 

Cash, Cash Flows and Working Capital

 

At September 30, 2014, we had current assets of $167,188, current liabilities of $2,764,884 and a working capital deficit of $2,597,696 compared to current assets of $214,192, current liabilities of $2,974,147 and a working capital deficit of $2,759,955 at December 31, 2013. The derivative liability was the largest liability in both 2014 and 2013 which was $1,714,028 as of September 30, 2014 compared to $2,147,814 as of December 31, 2013. In addition accounts payable and accrued expense increased from $194,494 as of December 31, 2013 to $238,006. Advances from related parties also increased by $24,560 from December 31, 2013 to September 30, 2014 along with accrued salaries related parties from $183,000 as of December 31, 2013 to $327,000 as of September 30, 2014. The increases of current liabilities increased were offset by the reduction of notes payable of $340,000 in the period ended September 30, 2014.

 

Net cash provided by operations for the nine months ending September 30, 2014 was $124,552 compared to net cash used of $58,712 in the same period in 2013. The increase in cash provided by operations was principally attributable to the increase in accounts payable and accrued expense, amortization of debt discounts and the write-off of indemnification asset along with an increase in accrued salaries to related parties.

 

Net cash used in investing activities for the period ending September 30, 2014 was $98,653 compared to zero for the same period in 2013. The increase was due to the acquisition of various fixed assets by the Company subsidiary Stereo Live of sound equipment.

 

Net cash provided by financing activities during the nine months ended September 30, 2014 was $36,458 compared to $80,000 for the same period in 2013. The financing activities included advances of related parties of $24,560, loans for working capital of $50,000 offset by bank overdraft reduction of $15,010 and repayment of loan payable of $23,092.

 

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 2014 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.

 

13

 

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. In September 2013 the Company issued 150,000 shares plus the note was rewritten and reduced to a principal amount of $300,000.

 

On May 28, 2014 the Company issued 3,000,000 shares of common stock to retire the note payable of $300,000. The Company recorded a $150,000 gain on debt settlement as the nine months ended September 30, 2014. As part this agreement the Company paid $10 to the note holder for the forgiveness of a $40,000 note and the company recorded a $40,000 gain on debt forgiveness.

 

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. As of September 30, 2014, the outstanding principal balance under this convertible debt was $421,260. As of September 30, 2014, the unamortized discount on these convertible notes associated with the derivative liability was $169,611.

 

On July 2, 2014 Stereo Live a subsidiary of the Company entered into credit line facility and three equipment leases. The terms of the credit facilities and leases are as follows:

 

1. A $50,000 loan that is paid back to the lender at the rate of $273.81 per business day for 252 days for total payment of $69,000.12 including the $50,000 in principal and $19,000.12 in total interest. As of September 30, 2014 the balance of the note was $37,691.

 

2. An equipment lease of $32,799.75 payable over 48 months at $1, 024.47 per month for total payment of $49,174.56 including the principal amount of $32,799.7 and interest of $16,374.81.

 

3. An equipment lease of $58,942 payable over 48 months at $1,780.05 per month for total payment of $85,442.40 including the principal amount of $58,942 and interest of $26,500.40

 

4. An equipment lease of $32,250 payable over 44 months at $1,092.23 per month for total payments of $48,058.12 including the principal amount of $32,250 and interest of $15,808.12

 

As of September 30, 2014 the balance due on the leases was $113,209.

 

The note and the leases are personally guaranteed by principals of the Company.

 

14

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements or guarantees of third party obligations at September 30, 2014.

 

Inflation

 

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

 

ITEM 3: QUANTITATIVE AND QUALITAIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4: 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, 2014 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, 2014. Such conclusion reflects the identification of material weakness as follows: (1) lack of accounting proficiency of our chief executive officer who is our sole officer and our principal accounting officer which has resulted in a reliance on part-time outside consultants to perform substantially all of our accounting functions, (2) a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function, and (3) lack of control procedures that include multiple levels of review. 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, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

15

 

PART II – OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

 

On December 12, 2013 the Company received a default judgment in the District Court of Dallas Texas against a seller of the Dallas market (Full Access) for $135,104 plus legal fees of $7,000. The judgment is the result of a suit filed to collect a liability not disclosed by the seller at the time of purchase of the Dallas market. The outstanding indemnification asset was $76,921. As of September 30, 2014 the Company wrote off the asset as a bad debt after reviewing the collectability of the asset.

 

ITEM 1A: RISK FACTORS

 

There have been no material changes to NightCulture’ risk factors as previously disclosed in our most recent 10-K filing for the year ending December 31, 2013.

 

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

On January 15, 2014 the Company issued 1,949,287 shares of common stock in exchange for 9,401,120 warrants, which were issued in 2011. The conversion of the warrants was a cashless conversion

 

On January 28, 2014 the Company issued 3,086,029 shares of common stock in exchange for a value of $78,740 of convertible debt that was issued in 2012.

 

On May 28, 2014 the Company issued 3,000,000 shares of common stock in exchange for the cancellation of a $300,000 note.

 

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

 

None

 

ITEM 4: MINE SAFETY INFORMATION

 

None

 

ITEM 5: OTHER INFORMATION

 

None.

 

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

 

16

 

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 14, 2014	By:	/s/ Michael Long
	Name:	Michael Long
	Title:	Chief Executive Officer
		(Acting Principal Financial and Accounting Officer and Duly Authorized Officer)

 

17

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