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, 2015 

 

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 August 13, 2015, the Registrant had 99,999,990 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, 2015 and December 31, 2014			3
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014			4
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014			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			14
SIGNATURES				15

 

2

 

PART I – FINANCIAL INFORMATION 

 

ITEM: 1 FINANCIAL STATEMENT

 

NIGHTCULTURE, INC.  

CONSOLIDATED BALANCE SHEETS

		June 30,  2015				December 31,  2014
		Unaudited
ASSETS
Current assets:
Cash and cash equivalents		$	114,375			$	64,293
Receivables			3,849				700
Inventory			19,986				37,332
Total current assets			138,210				102,325
Fixed assets, net of accumulated depreciation of $108,011 and $72,774			131,908				167,145
Intangible assets, net of accumulated amortization of $121,208 and $101,560			275,128				294,776
Total assets		$	545,246			$	564,246
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expense		$	384,614			$	429,278
Accrued interest			99,595				89,063
Accrued salaries - related parties			132,685				375,000
Advances from related parties			32,143				47,060
Derivative liability			851,438				1,437,676
Short term lease obligation			37,145				61,946
Convertible debentures, net of unamortized discounts of $33,712 and $101,697			387,548				319,563
Total current liabilities			1,925,168				2,759,586
Long term lease obligation			60,947				74,634
Total liabilities			1,986,115				2,834,220
Stockholders’ deficit:
Preferred stock, $0.001 par value, 10,000,000 authorized, none issued and outstanding			--				--
Common stock, $0.001 par value, 500,000,000 authorized, 99,999,990 and 65,958,931 issued and outstanding, respectively			100,000				65,959
Additional paid-in capital			6,024,573				5,678,239
Accumulated deficit			(7,565,442	)			(8,014,172	)
Total stockholders’ deficit			(1,440,869	)			(2,269,874	)
Total liabilities and stockholders’ deficit		$	545,246			$	564,246

 

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

 

3

 

NIGHTCULTURE, INC.  

CONSOLIDATED STATEMENTS OF OPERATIONS 

(Unaudited) 

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Revenue		$	2,295,735			$	1,655,817			$	3,465,819			$	2,920,502
Direct costs			1,740,448				881,779				2,426,779				1,597,904
Gross profit			555,287				774,038				1,039,040				1,322,598
Operating expenses:
Depreciation and amortization expense			27,441				12,576				54,885				23,569
General and administrative expense			446,853				586,978				1,008,294				1,321,681
Total operating expenses			474,294				599,544				1,063,179				1,345,250
Income (loss) from operations			80,993				174,484				(24,139	)			(22,652	)
Other income (expense)
Gain on debt forgiveness and settlement			--				190,000				--				190,000
Interest expense			(59,689	)			(42,437	)			(113,369	)			(130,620	)
(Loss) Gain on change in fair value of derivative liabilities			(369,028	)			464,236				586,238				(147,790	)
Other expense			--				(514	)			--				(1,105	)
Total other income (expense)			(428,717	)			611,285				472,869				(89,515	)
Net (loss) income		$	(347,724	)		$	785,769			$	448,730			$	(112,167	)
Net (loss) income per share: Basic		$	(0.00	)		$	0.01			$	0.01			$	(0.00	)
Net (loss) income per share: Diluted		$	(0.00	)		$	0.01			$	(0.00	)		$	(0.00	)
Weighted average number of common shares outstanding:
Basic			78,677,568				64,046,843				72,353,384				62,866,952
Diluted			78,677,568				95,121,543				205,557,793				62,866,952

 

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,
		2015				2014
Cash flows from operating activities:
Net (loss) income		$	448,730			$	(112,167	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense			54,885				23,569
Amortization of debt discounts			67,985				113,495
Loss (Gain) on change in fair value of derivative liabilities			(586,238	)			147,790
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			(3,149	)			(36,357	)
Inventory			17,346				(7,723	)
Accrued salaries to related parties			91,000				96,000
Deferred revenue			--				(3,750	)
Accounts payable and accrued expense			(34,132	)			79,290
Net cash provided by operating activities			56,427				187,068
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 from related parties			50,000				24,560
Repayment of related party advances			(17,857	)			--
Repayment of lease obligation			(38,488	)			--
Net cash flows provided by (used in) financing activities			(6,345	)			9,559
Net increase in cash			50,082				167,547
Cash – beginning of period			64,293				52,691
Cash – end of period		$	114,375			$	220,238
SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid		$	34,853			$	6,365
Income taxes paid		$	--			$	--
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for related parties advances and accrued salaries		$	380,375			$	--
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
Common stock issued for exercise of warrants		$	--			$	1,950
Common stock issued for conversion of convertible debt		$	--			$	78,740
Common stock 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. 

 

On June 19, 2015 the Company amended its articles of incorporation to increase the authorized shares of common stock from 100,000,000 to 500,000,000.  

 

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, 2014. 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, 2014 as reported on Form 10-K, have been omitted.  

 

NOTE 2 – GOING CONCERN  

 

As shown in the accompanying financial statements, the Company has negative working capital of $1,786,958 and an accumulated deficit of $7,565,442 as of June 30, 2015. The Company’s ability to generate net income and positive cash flows is dependent on the ability to grow its operations 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 June 30, 2015 and December 31, 2014: 

 

Recurring Fair Value Measures		Level 1				Level 2				Level 3				Total
LIABILITIES:
Derivative liabilities as of June 30, 2015			--				--			$	851,438			$	851,438
Derivative liabilities as of December 31, 2014			--				--			$	1,437,676			$	1,437,676

 

The below table represents the change in the fair value of the derivative liabilities during the six months ended June 30, 2015: 

 

Fair value of derivatives, December 31, 2014		$	1,437,676
Change in fair value of derivative liability			(586,238	)
Fair value of derivatives, June 30, 2015		$	851,438

 

7

 

NOTE 4 – RELATED PARTY TRANSACTIONS 

 

During the six months ended June 30, 2015 the Company received a loan from a director of the Company of $50,000. The loan is payable over 42 weekly payments of $1,547.62 per week. The company has made payment of $17,857 toward the principal balance during the six months ended June 30, 2015.  

 

On May 27, 2015, the Company issued 34,041,059 shares of common stock to two related parties in satisfaction of $47,060 of related party advances and $333,315 of accrued salaries. The shares were determined to have a fair value of $309,774 based on the stock price on issuance date. The $70,601 excess of debt amount satisfied over the fair value of the stock issued is recorded as additional paid in capital. 

 

As of June 30, 2015 and December 31, 2014, total advances owed to related parties were $32,143 and $47,060, respectively. The advances, other than the $50,000 loan noted above, bear no interest and are payable on demand. 

 

As of June 30, 2015 and December 31, 2014, the Company had accrued salaries owed to related parties of $132,685 and $375,000, 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. As of June 30, 2015 and December 31, 2014, the outstanding principal balance under this convertible debt was $421,260 and $421,260, respectively. The embedded conversion option in these convertible debentures was accounted for as a derivative liability (see Note 3). As of June 30, 2015 and December 31, 2014, the unamortized discount on these convertible notes associated with the derivative liability was $33,712 and $101,697, respectively. During the six months ended June 30, 2015, amortization of the discount totaled $67,985. 

 

Lease Obligation 

 

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 June 30, 2015 the balance of the note was $5,414;
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. As of June 30, 2015, the balance of the note was $26,303;
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. As of June 30, 2015, the balance of the note was $45,565; and
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 June 30, 2015, the balance of the note was $20,810.

 

8

 

The Company had accounted for the above transaction under ASC 640 - 30 “Capital Leases”. The Company has made payment of $38,488 toward the principal balance during the six months ended June 30, 2015. As of June 30, 2015 the balance due on the leases was $98,092, with $37,145 recorded as short term debt and the balance of $60,947 recorded as long term debt. 

 

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

 

NOTE 6 - WARRANTS 

 

As of June 30, 2015, the Company had 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 six months ended June 30, 2015: 

 

										Weighted
						Weighted				Average
						Average				Remaining				Number of
						Exercise				Contract				Warrants				Intrinsic
		Warrants				Price				Life				Exercisable				Value
Outstanding at December 31, 2014			25,000,000			$	0.01				1.00				25,000,000			$	490,688
Granted			--				--				--				--				--
Exercised			--				--				--				--				--
Forfeited or Cancelled			--				--				--				--				--
Outstanding at June 30, 2015			25,000,000				0.004				0.50				25,000,000			$	130,188

 

NOTE 7– LITIGATION 

 

On October 21, 2014, a civil case # 2014-56915 was entered in the District Court in Harris County, Texas against Stereo Live. The complaint claims an individual served liquor by the staff of Stereo Live was involved in accident causing damages to the plaintiff who is seeking damages between $200,000 and $1,000,000. At the date of the incident, Stereo Live had enforce an insurance policy covering this incident with aggregate coverage of $2,000,000 and individual coverage up to $1,000,000 for such occurrence. The insurance company is defending the suit under the terms of the policy so the Company has not incurred or accrued any liability as it believes it is fully covered under the insurance policy. 

 

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. 

 

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.  

 

Overview

 

Our principal line of business is promoting and producing, and selling merchandise at, live concerts and festivals, 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 500 live concerts. To date, we have organized events principally in Houston, San Antonio, Austin, Oklahoma City and 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. 

 

We also derive revenues from venue rentals, beverage sales and other related fees and charges derived from operation of our Stereo Live venue. 

 

We produce two music festivals per year, Something Wicked, a Halloween themed music festival in Houston, TX with attendance over 40,000 in 2014 and Something Wonderful, a spring themed music festival in Dallas, TX made its debut in 2015 with over 15,000 in attendance.  

 

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, 2015 was $2,295,735 and $3,465,819, respectively, compared to $1,655,817 and $2,920,502 for the same periods in 2014. The increase in revenues was attributable to a 7.9% increase in the number of events produced during 2015, including the 2015 debut of our Something Wonderful festival. 

 

10

 

Direct Costs 

 

Direct costs were $1,740,448 and $2,426,779 for the three and six months ended June 30, 2015 compared to $881,779 and $1,597,904 for the same periods in 2014. As a percentage of revenues, direct costs for the three and six month period ended June 30, 2015 was 75.8% and 70% compared to 53.2% and 54.7% for the same periods in 2014. The change in direct cost as a percentage of sales was due to low margins from our Something Wonderful festival, which is typically of the early years of a festival.  

 

General and Administrative Expenses

 

General and administrative expense for the three and six months ended June 30, 2015 was $446,853 and $1,008,294 compared to $$586,978 and $1,321,681 for the same periods in 2014. The decrease in general and administrative expense was attributable to flexible staffing, decreased salaries for related parties, lower administration and other investments to support our planned growth initiatives and a one-time write-off during 2014.The principal general and administrative expenses for the six months period were as follows:

 

		Six Months Ended June 30,
		2015				2014
Consulting and salaries		$	445,173			$	431,754
Legal and accounting			49,380				59,620
Venue			438,371				678,811
Travel and entertainment			5,074				6,243
Write-off of indemnification asset			--				76,921
Office and other expenses			70,296				68,332
		$	1,008,294			$	1,321,681

 

Depreciation and Amortization  

 

Depreciation and amortization expense incurred in the three and six month period ended June 30, 2015 was $27,441 and $54,885 compared to $12,576 and $23,569 for the same periods in 2014. 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 and convertible debt. Other income and expense totaled expense of $428,717 for the three month period and other income of $472,869 for the six months ended June 30, 2015 verses other income of $611,285 for the three months and other expense of $89,515 for the six months period in 2014. The change was mainly attributable to the change in fair value of derivative liabilities.  

 

Net Income (Loss) 

 

The Company incurred a net loss of $347,724 for the three month period and net income of $448,730 for the six months period ended June 30, 2015 compared to net income of $785,769 for the three months period and a net loss of $112,167 for the six months periods in 2014. The fluctuation of derivative liability was the major contribution to the variations in the net income and net losses between periods. 

 

11

 

Financial Condition 

 

Cash, Cash Flows and Working Capital 

 

At June 30, 2015, we had current assets of $138,210, current liabilities of $1,925,168 and a working capital deficit of $1,786,958 compared to current assets of $102,325 and current liabilities of $2,759,586 and a working capital deficit of $2,657,261 at December 31, 2014. Included in current liabilities and the working capital deficit for each period was our derivative liability which was $1,437,676 as of December 31, 2014 compared to $851,438 as of June 30, 2015, accounting for $586,238 of the decrease in current liabilities and working capital deficit. Also reflected in the decrease in current liabilities and working capital deficit are decreases in amounts owed to related parties of $380,375, which amounts were converted to 34,041,059 shares of common stock. As a result of such conversion of debt to equity, total due to related parties decreased a net of $257,232 which included a decrease of advances from related party from $47,060 as of December 31, 2014 to $32,143 as of June 30, 2015 along with a decrease in accrued salaries related parties from $375,000 as of December 31, 2014 to $132,683 as of June 30, 2015. 

 

Net cash provided in operations for the six months ending June 30, 2015 was $56,427 compared to net cash provided of $187,068 for the same periods in 2014. The decrease in cash provided by operations was principally attributable to the decrease in accounts payable and accrued expense, and gain in fair value of derivative liability. 

 

Net cash used in investing activities for the period ending June 30, 2015 was $0 compared to $29,071 for the same period in 2014. The decrease was mainly due to the purchase of $17,500 intangible asset and $11,571 fixed asset during the six months ended June 30, 2014 while there was no such investing activities for the same periods in 2015. 

 

Net cash used by financing activities during the six months ended June 30, 2015 was $6,345 compared to net cash provided of $9,559 for the same periods in 2014. The financing activities included payments of related parties advances of $17,857, repayment of debt for $38,488, offset by advances from related party of $50,000 during the six months ended June 30, 2015 compared to repayment of a bank indebtedness of $15,010 and advances by related parties of $24,560 for the same periods in 2014. 

 

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 2015 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. 

 

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. As of June 30, 2015 and December 31, 2014, the outstanding principal balance under this convertible debt was $421,260 and $421,260, respectively. The embedded conversion option in these convertible debentures was accounted for as a derivative liability (see Note 3). As of June 30, 2015 and December 31, 2014, the unamortized discount on these convertible notes associated with the derivative liability was $33,712 and $101,697, respectively. During the six months ended June 30, 2015, amortization of the discount totaled $67,985. 

 

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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 June 30, 2015 the balance of the note was $5,414;
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. As of June 30, 2015, the balance of the note was $26,303;
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. As of June 30, 2015, the balance of the note was $45,565; and
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 June 30, 2015, the balance of the note was $20,810.

 

The Company had accounted for the above transaction under ASC 640 - 30 “Capital Leases”. The Company has made payment of $38,488 toward the principal balance during the six months ended June 30, 2015. As of June 30, 2015 the balance due on the leases was $98,092, with $37,145 is recorded as short term debt and the remaining balance of $60,947 is recorded as long term debt. 

 

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

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements or guarantees of third party obligations at June 30, 2015. 

 

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, 2015 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, 2015. 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 three months ended June 30, 2015 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 

 

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, 2014. 

 

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

 

None 

 

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

 

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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 13, 2015	By:	/s/ Michael Long
		Michael Long
		Chief Executive Officer
		(Acting Principal Financial and Accounting Officer and Duly Authorized Officer)

 

 

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