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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 June 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 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.
 
Large accelerated filer
£
Accelerated filed
£
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 August 5, 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)
  3  
         
 
Unaudited Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013
    3  
           
 
Unaudited Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2014 and 2013
    4  
           
 
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 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
    13  
           
Item 4.
Controls and Procedures
    13  
           
PART II – OTHER INFORMATION        
           
Item 1.
Legal Proceedings
    14  
           
Item 1A.
Risk Factors
    14  
           
Item 2.
Unregistered Sales of Equity and Use of Proceeds
    14  
           
Item 3.
Default upon Senior Securities
    14  
           
Item 4.
Mine Safety information
    14  
           
Item 5.
Other Information
    14  
           
Item 6.
Exhibits
    15  
           
SIGNATURES     16  

 
2

 
 
PART I – FINANCIAL INFORMATION
ITEM: 1 FINANCIAL STATEMENTS

NIGHTCULTURE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
June 30,
 2014
   
December 31,
2013
 
ASSETS
Current assets:
           
Cash and cash equivalents
  $ 220,238     $ 52,691  
Receivables
    92,493       56,136  
Inventory
    23,229       15,506  
Prepaid expenses
    12,938       12,938  
Indemnification asset
    --       76,921  
Total current assets
    348,898       214,192  
                 
Fixed assets, net of depreciation of $37,534 and $33,613
    18,728       3,660  
Intangible assets, net of accumulated amortization of $81,912 and $62,264
    334,424       334,072  
Goodwill
    238,674       238,674  
                 
Total assets
  $ 940,724     $ 790,598  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
               
Accounts payable and accrued expense
  $ 272,750     $ 194,494  
Accrued interest
    78,531       67,771  
Bank overdraft
    --       15,010  
Deferred income
    --       3,558  
Accrued salaries to related parties
    279,000       183,000  
Advances from related parties
    47,060       22,500  
Derivative liability
    1,720,564       2,147,814  
Notes payable
    --       340,000  
Total current liabilities
    2,397,905       2,974,147  
                 
Convertible debentures, net of unamortized discounts of $169,611 and $283,106
    251,649       216,894  
Total liabilities
    2,649,554       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
    (7,453,028 )     (7,340,861 )
Total stockholders’ deficit
    (1,708,830 )     (2,400,443 )
                 
Total liabilities and stockholders’ deficit
  $ 940,724     $ 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
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Revenue
  $ 1,655,817     $ 1,279,138     $ 2,920,502     $ 2,296,924  
Direct costs
    881,779       800,886       1,597,904       1,218,917  
Gross profit
    774,038       478,252       1,322,598       1,078,007  
                                 
Operating expenses:
                               
Depreciation and amortization expense
    12,576       10,994       23,569       23,284  
General and administrative expense
    586,978       489,836       1,321,681       982,502  
Total operating expenses
    599,554       500,830       1,345,250       1,005,786  
                                 
(Loss) Income from operations
    174,484       (22,578 )     (22,652 )     72,221  
                                 
Other income (expense)
                               
Other income
    --       2,021       --       2,022  
Gain on debt forgiveness and settlement
    190,000       --       190,000       --  
Interest expense
    (42,437 )     (65,695 )     (130,620 )     (131,527 )
(Loss) Gain on change in fair value of derivative liabilities
    464,236       1,580,800       (147,790 )     2,235,527  
Other expense
    (514 )     --       (1,105 )     --  
Total other income (expense)
    611,285       1,517,126       (89,515 )     2,106,022  
                                 
Net (loss) income
  $ 785,769     $ 1,494,548     $ (112,167 )   $ 2,178,243  
                                 
Net (loss) income per share: Basic
  $ 0.01     $ 0.03     $ (0.00 )   $ 0.04  
Net (loss) income per share: Diluted
  $ 0.01     $ 0.01     $ (0.00 )   $ 0.02  
                                 
Weighted average number of common shares outstanding:
                               
Basic
    64,046,843       55,862,573       62,866,952       54,459,741  
Diluted
    95,121,543       99,173,873       62,866,952       97,771,041  

The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
4

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

   
Six Months Ended
 
   
June 30,
 
   
2014
   
2013
 
Cash flows from operating activities:
           
Net (loss) income
  $ (112,167 )   $ 2,178,243  
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
               
Depreciation and amortization expense
    23,569       23,284  
Amortization of debt discounts
    113,495       83,333  
Loss (Gain) on change in fair value of derivative liabilities
    147,790       (2,235,527 )
Write-off of indemnification asset
    76,921       --  
Gain on settlement of debt
    (150,000 )     --  
Gain on debt forgiveness
    (40,000 )     --  
Changes in operating assets and liabilities:
               
Accounts receivable
    (36,357 )        
Inventory
    (7,723 )     410  
Accrued salaries to related parties
    96,000       --  
Accounts payable and accrued expense
    79,290       12,977  
Prepaid expenses and other assets
    --       (29,000 )
Deferred income
    (3,750 )     (50,000 )
Net cash provided by (used in) operating activities
    187,068       (16,280 )
                 
Cash flows used in investing activities
               
Purchase of intangible assets
    (17,500 )     --  
Cash paid for fixed assets
    (11,571 )     --  
Net cash used in investing activities
    (29,071 )     --  
                 
Cash flows from financing activities
               
Bank indebtedness
    (15,010 )     --  
Advances received from related parties
    24,560       --  
Net cash flows provided by financing activities
    9,550       --  
                 
Net increase (decrease) in cash
    167,547       (16,280 )
Cash – beginning of period
    52,691       31,030  
Cash – end of period
    220,238       14,750  
                 
SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION:
               
Interest paid
    6,365       --  
Income taxes paid
    --       --  
                 
NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Derivative write-off due to conversion of debt
    142,242       --  
Purchase of intangible assets through accounts payable
    2,500       --  
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       --  
Purchase of fixed assets through accounts payable
    7,418       --  

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 $2,049,007 and an accumulated deficit of $7,453,028, as of June 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.

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.

 
6

 
 
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 June 30, 2014 and December 31, 2013:

Recurring Fair Value Measures
 
Level 1
   
Level 2
   
Level 3
   
Total
 
LIABILITIES:
                       
 Derivative liabilities as of June 30, 2014
    --       --     $ 1,720,564     $ 1,720,564  
 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 six months ended June 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
    147,790  
Fair value of derivatives, June 30, 2014
  $ 1,720,564  
 
 
7

 
 
NOTE 4 – RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2014 the Company received advances from the Chief Executive Officer of the Company of $24,560. As of June 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 June 30, 2014 and December 31, 2013, the Company had accrued salaries owed to related parties of $279,000 and $183,000, respectively.

NOTE 5 – DEBT

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 $78,740 of the convertible debt. As of June 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 June 30, 2014 and December 31, 2013, the unamortized discount on these convertible notes associated with the derivative liability was $169,611 and $283,106. During the six months ended June 30, 2014, amortization of the discount totaled $113,495.

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 six months ended June 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.

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 six months ended June 30, 2014 the Company wrote-off the indemnification asset resulting in bad debt expense of $76,921 after reviewing the collectability of the asset.

 
8

 
 
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. $17,500 was paid during the six months ended June 30, 2014 with the balance of $2,500 due to be paid on July 15, 2014.

NOTE 8 – WARRANTS

As of June 30, 2014 the Company has 25,00,000 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 six months ended June 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 June 30, 2014
    25,000,000       0.026       1.50       25,000,000     $ 505,688  
 
NOTE 9 – SUBSEQUENT EVENTS

On July 2, 2014 Stereo Live a subsidiary of the Company entered into credit line and three equipment leases. The terms of the credit facilities 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.
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
 
The note and the leases are personally guaranteed by principals of the Company.

 
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 six months ended June 30, 2014 was $1, 655,817 and $2,920,502 compared to $1,279,138 and $2,296,924 during the three and six months ended June 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 $881,779 and $1,597,904 for the three and six months ended June 30, 2014 compared to $800,886 and $1,218,917 for the same periods in 2013. As a percentage of revenues, direct costs for the three and six months periods 53.3% and 54.7% were 56.6% in the 2014 compared to 62.6% 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 six 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 three month periods were as follows:

 
Six Months Ended
June 30,
 
 
2014
   
2013
 
Shows
  $ 1,183,890     $ 960,753  
Stereo Live Venue
    34,878       31,087  
Beverages
    379,136       227,077  
    $ 1,597,904     $ 1,218,917  

General and Administrative Expenses

General and administrative expense for the three and six months ended June 30, 2014 was $586,978 and $1,321,681 compared to $489,836 and $982,502 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:

   
Six Months Ended
June 30,
 
   
2014
   
2013
 
Consulting and salaries
  $ 431,754     $ 293,269  
Legal and accounting
    59,620       46,066  
Venue
    678,811       426,977  
Travel and entertainment
    6,243       1,356  
Write-off of indemnification asset
    76,921       --  
Office and other expenses
    68,332       215,269  
    $ 1,321,681     $ 982,937  

 
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Depreciation and Amortization

Depreciation and amortization expense incurred in the three and six month period ended June 30, 2014 was $12,576 and $23,569 compared to $10,994 and $23,284 in 2013. The increase in depreciation and amortization expense was attributable to added assets purchased during the second 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 $611,285 and ($89,515) for the three month and six months period verses other income of $1,517,126 and $2,106,022 in the same periods in 2013. The change for the six month periods was mainly attributable to the change in fair value of derivative liabilities creating a loss of $147,790 in 2014 compared to a gain of $2,235,527 for the same period in 2013with the 2014 period offset by gain on debt forgiveness of $190,000 verse none in the six month period in 2013.

Financial Condition

Cash, Cash Flows and Working Capital

At June 30, 2014, we had current assets of $348,898, current liabilities of $2,397,905 and a working capital deficit of $2,049,007 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 $1,720,564 as of June 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 $272,942. Advances from related parties also increased by $24,560 from December 31, 2013 to June 30, 2014 along with accrued salaries related parties from $183,000 as of December 31, 2013 to $279,000 as of June 30, 2014. The increases of current liabilities were offset by the reduction of notes payable of $340,000 in the period ended June 30, 2014.

Net cash provided by operations for the six months ending June 30, 2014 was $187,068 compared to net cash used of $16,280 in the same period in 2013. The increase in cash provided by operations was principally attributable to the increase in accounts payable, 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 June 30, 2014 was $29,071 compared to zero for the same period in 2013.

Net cash provided by financing activities during the six months ended June 30, 2014 was $9,550 compared to zero for the same period in 2013.

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.

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

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party obligations at June 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 June 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 June 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 June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
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PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

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 June 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, 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.

 
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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.

 
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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.  
       
Dated: August 5, 2014
By:
/s/ Michael Long  
    Michael Long  
    Chief Executive Officer  
   
(Acting Principal Financial and Accounting
Officer and Duly Authorized Officer)
 
 
 
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