NightCulture Inc (fka NGHTD)

[Seekingalphacontributor]

But let's get back to facts.

As I remember, someone was adamant about the share structure being 109 million outstanding, which it isn't. It isn't even 99,795,02. It is actually only 63 million, diluted.

I also recall that the stock had the biggest drop the day the 10-Q was released. Some people were very upset that the company recorded 900,000 in losses, although those were arguably only paper losses. However, the fact that the company had nearly 3 million in paper gains last year was seen as negligible. So paper losses are bad but paper gains are insignificant?

Also, there has not been a satisfactory discussion on the OPEX and the Direct Costs. If we break down the costs the biggest increase is Promotion. Promotion 2013 Q1 was 30,000. this quarter it was 283,000. What is the purpose of this cost? Building brand recognition. This is a cost related to expansion.

Here is a breakdown:

Direct Costs
Promotion $283,207.00 $30,000.00 844%
Talent and Production $220,502.00 $285,771.00 -23%
Beverages $212,416.00 $134,591.00 58%
Total $716,125.00 $450,362.00 59%

Direct costs increase by nearly 60% YoY. But I think it is significant that the company was able to cut costs of talent and production by 23% despite adding 8 shows this quarter. This is actually impressive.

OPEX:

Consulting and Salaries $229,065.00 $149,720.00 53%
Travel and Entertainment $3,947.00 $2,122.00 86%
Office and other expenses $141,834.00 $32,032.00 343%
Legal and accounting $40,720.00 23,020 77%
Venue 242,216 285,771 -15%
Writ- off of indemnification $76,921.00
Total $734,703.00 $492,665.00 49%

So total increase of OPEX was 49%.

The most concerning cost is "office and other expenses" which increased by 343%.

Is this a cost related to expansion? Yes, absolutely. But again, they were able to cut costs on the venue by -15%. This is impressive.

So cutting costs of talent, production, and venue all demonstrate that the company has been able to increase gross margins on the direct costs of putting on the show but have increased costs in order to expand the business.

I discuss all of this in my article: http://seekingalpha.com/article/2220813-traders-dump-shares-of-night-culture-despite-revenue-being-up-24-percent-yoy