BLACKCRAFT CULT, INC. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - BLACKCRAFT CULT, INC.	Financial_Report.xls
EX-31.1 - EX. 31.1 - BLACKCRAFT CULT, INC.	ex31.htm
EX-32.1 - EX. 32.1 - BLACKCRAFT CULT, INC.	ex32.htm

UNITED STATES

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

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

Commission file number 000-54898

BLACKCRAFT CULT, INC.

(Exact name of registrant as specified in its charter)

Nevada		30-0686483
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1030 N Main Street. Unit B, Orange, CA		92867
(Address of principal executive offices)		(Zip Code)

(949) 547-5916

(Registrant’s telephone number, including area code)

Copies of Communications to:

Stoecklein Law Group, LLP

401 West A Street

Suite 1150

San Diego, CA 92101

(619) 704-1310

Fax (619) 704-1325

Indicate by check mark whether the issuer (1) 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) has 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 filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	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

The number of shares of Common Stock, $0.001 par value, outstanding on August 19, 2014 was 199,360,046 shares.

BLACKCRAFT CULT, INC.

QUARTERLY PERIOD ENDED JUNE 30, 2014

Index to Report on Form 10-Q

		Page No.
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	16

Item1A.	Risk Factors	16

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Mine Safety Disclosures	17

Item 5.	Other Information	17

Item 6.	Exhibits	17

	Signatures	18

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BLACKCRAFT CULT, INC.
FORMERLY MERCULITE DISTRIBUTING, INC.
BALANCE SHEETS
(UNAUDITED)


	June 30,			December 31,
	2014			2013

ASSETS

Current assets:
Cash and equivalents	$	163,839		$	78,059
Accounts receivable		105			691
Inventory		78,944			76,153
Income tax benefit		11,881			-
Total current assets		254,769			154,903

Fixed assets, net		3,410			3,928
Marketable securities		50,000			-

Total assets	$	308,179		$	158,831


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	164,127		$	347
Accrued liabilities		8,566			11,617
Total current liabilities		172,693			11,964

Long-term liabilities:
Accrued interest payable - related party		155			-
Notes payable - related party		11,567			-
Line of credit - related party		8,250			-
Total long-term liabilities		19,972			-

Total liabilities		192,665			11,964

Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding
as of June 30, 2014 and December 31, 2013, respectively		-			-
Common stock, $0.001 par value, 6,666,600,000 shares
authorized, 199,160,014 and 148,350,510, shares issued and outstanding
as of June 30, 2014 and December 31, 2013, respectively		199,160			148,351
Additional paid-in capital		(60,583	)		(430,414	)
Retained earnings (deficit)		(23,063	)		428,930
Total stockholders' equity		115,514			146,867

Total liabilities and stockholders' equity	$	308,179		$	158,831



The accompanying notes are an integral part of the financial statements.

BLACKCRAFT CULT, INC.
FORMERLY MERCULITE DISTRIBUTING, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)




	For the three months ended		For the six months ended
	June 30,		June 30,
	2014	2013	2014		2013

Revenue
Product sales	$ 298,394	$ 300,546	$ 677,137		$ 458,833
Shipping income	46,667	-	105,222		26,898
Total revenue	345,061	300,546	782,359		485,731

Cost of sales
Product cost of goods sold	102,358	104,272	190,742		139,119
Shipping costs	38,467	35,196	87,556		59,131
Total cost of sales	140,825	139,468	278,298		198,250

Gross profit	204,236	161,078	504,061		287,481

Operating expenses:
General and administrative	227,895	47,232	400,750		73,581
Executive compensation	11,013	-	12,013		-
Depreciation	258	-	517		-

Total operating expenses	239,166	47,232	413,280		73,581

Other expenses:
Currency conversion	(14)	-	(14)	#	-

Total other expenses	(14)	-	(14)		-

Net income (loss) before provision for income taxes	(34,944)	113,846	90,767		213,900

Benefit for income taxes	(11,881)	-	(11,881)		-

Net income (loss)	(23,063)	113,846	102,648		213,900


Weighted average number of common shares	198,637,719	148,350,510	170,567,909		148,350,510
outstanding - basic

Net loss per common share - basic	$ (0.00)	$ 0.00	$ 0.00		$ 0.00



The accompanying notes are an integral part of the financial statements.

BLACKCRAFT CULT, INC.
FORMERLY MERCULITE DISTRIBUTING, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)


	For the			For the
	six months			six months
	ended			ended
	June 30,			June 30,
	2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	102,648		$	213,900
Adjustment to reconcile to net loss to net cash used in operating activities:
Depreciation		518			84
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable		586			(3,757	)
(Increase) in inventory		(2,791	)		-
(Increase) in income tax benefit		(11,881	)		-
Increase (Decrease) in accounts payable		7,350			(5,194	)
Increase (Decrease) in accrued liabilities		(3,051	)		5,107
Increase in accrued interest payable - related party		231			-

Net cash used in operating activities		93,610			210,140

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities		(50,000	)		-
Purchase of furniture and fixures		-			(3,127	)

Net cash used in investing activities		(50,000	)		(3,127	)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash acquired at merger		21,344			-
Net liabilities acquired at merger		(125,741	)		-
Member's contributions		-			51,156
Member's distributions		-			(164,315	)
Proceeds from notes payable - related party		11,567			-
Proceeds from line of credit - related party		-			4,900
Payments to line of credit - related party		-			-
Proceeds from sale of common stock, net of offering costs		135,000			-

Net cash provided by financing activities		42,170			(108,259	)

NET CHANGE IN CASH		85,780			98,754

CASH AT BEGINNING OF PERIOD		78,059			458

CASH AT END OF PERIOD	$	163,839		$	99,212


SUPPLEMENTAL INFORMATION:
Interest paid	$	-		$	-
Income taxes paid	$	-		$	-

Non-cash activities:
Shares issued for spin off from Oraco Resources, Inc.	$	-		$	-
Shares issued for prepaid expenses	$	-		$	-
Shares issued for debt conversion	$	-		$	11,837


The accompanying notes are an integral part of the financial statements.

BLACKCRAFT CULT, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2013 and notes thereto included in the Company’s 8-K current report. The Company follows the same accounting policies in the preparation of interim reports.

Results of operations for the interim period are not indicative of annual results.

Organization

The sole proprietorship was formed and a doing business as was filed on January 11, 2013 (Date of Inception) under the laws of the State of California, as DBA Blackcraft Cult.

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to exploration stage enterprises, and are expressed in U.S. dollars. The Company’s fiscal year end is December 31.

On January 15, 2014, the Company entered into Contribution Agreement with Blackcraft Emoji Incorporated, a California corporation (“BEI”), whereby they contributed 100% of the assets, liabilities and operations of the Company in exchange for 148,349,497 shares of BEI. Prior to the Contribution Agreement, BEI had 1,000 shares issued and outstanding.

On March 21, 2014, BEI entered into an Acquisiton Agreement and Plan of Merger (the “Merger Agreement”) by and among Merculite Sub Co (“Sub Co”), a Nevada corporation and wholly owned subsidiary of BCC, and Blackcraft Cult, Inc. (“BCC”), a Nevada corporation; Sub Co and BEI being the constituent entities in the Merger. Pursuant to the Merger Agreement BCC intends to issue 2,234,280 shares of its Rule 144 restricted common stock in exchange for 100% of BEI’s issued and outstanding common stock. Pursuant to the terms of the Merger, Sub co will be merged with BEI and Sub Co will cease to exist and BEI will become a wholly owned-subsidiary of BCC. Subject to the terms and conditions set forth in the Merger Agreement, the Merger closed on March 27, 2014 (the “Closing Date”). The Merger, upon closing will provide BCC with the ownership of 100% of BEI.

The Merger Agreement contains conditions to closing which include: (i) BCC issuing 2,234,580 shares of restricted common stock in exchange for 100% of the issued and outstanding common stock of BEI, and (ii) auditable financial statements of BEI, prepared pursuant to Regulation S-X. The audited financial statements of BEI shall be completed and presented to the Company for filing with a Form 8-K, as required by Item 2.01 and Item 9.01 of Form 8-K, within 4 days of the Closing Date of the Merger.

For accounting purposes, the acquisition of the BEI by BCC has been accounted for as a recapitalization, similar to a reverse acquisition except no goodwill is recorded, whereby the private company, BEI, in substance acquired a non-operational public company (BCC) with nominal assets and liabilities for the purpose of becoming a public company. Accordingly, BEI is considered the acquirer for accounting purposes and thus, the historical financials are primarily that of BEI. As a result of this transaction, BCC, Inc. changed its business direction and is now a beverage business. Additionally, the Company changed its name from Merculite Distributing, Inc. to Blackcraft Cult, Inc.

BLACKCRAFT CULT, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Nature of operations

Currently, the Company’s operations are retail and wholesale sales of merchandise including clothing, hats, etc.

Inventory

Inventories are stated at the lower of cost (average cost) or market (net realizable value). As of June 30, 2014, the Company had finished goods inventory of $78,944.

Revenue recognition

The Company’s records revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company records revenue from the sale of merchandise upon shipment or delivery of the products to the customer. The Company also records the shipping income when the products are sent to the customer.

Sales returns and allowances

The Company has a 14 day return/exchange policy and is accepted for items that are in a like new condition. The return postage is the responsibility of the customer except for those items which are the result of the Company’s improper filling of the order.

Income taxes

For financial reporting purposes, the Company has elected to use the taxes payable method. Under this method, income tax expense represents the amount of income tax the Company expects to pay based on the Company’s current year taxable income. Income tax for the period is provided at the applicable tax rate on taxable income.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.

Fair value of financial instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

Level 1: The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.

Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.

Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.

BLACKCRAFT CULT, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-based compensation

The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

Recent pronouncements

The Company has evaluated recent accounting pronouncements through the filing date and believes that none of them will have a material effect on the Company’s financial statements.

NOTE 2 – FIXED ASSETS

The following is a summary of fixed assets:

	June 30,
	2014
Computer equipment	$	1,229
Machinery and equipment		3,127
Fixed assets, total		4,356
Less: accumulated depreciation		(946	)
Fixed assets, net	$	3,410

Depreciation expense for the three months ended June 30, 2014 and 2013 was $258 and $0 respectively. Depreciation expense for the six months ended June 30, 2014 and 2013 was $517 and $0, respectively.

NOTE 3 – NOTES PAYABLE AND LINE OF CREDIT – RELATED PARTY

During the year ended December 31, 2013, the Company drew down $13,750 and repaid $1,000 against the revolving line of credit. As of June 30, 2014, an amount of $8,250 has been used for general corporate purposes with a remaining balance of $11,750 available.

Interest expense for the three months ended June 30, 2014 and 2013 was $40 and $0, respectively. Interest expense for the six months ended June 30, 2014 and 2013 was $80 and $0, respectively.

During the three months ended June 30, 2014, the Company received a loan totaling $11,567 from an officer, director and shareholder. The loan bears no interest and is due upon demand.

NOTE 4 – STOCKHOLDERS’ EQUITY

During January 2014, BEI sold a total of 620,000 shares of common stock for a total of $155,000.

On March 5, 2014, BEI effectuated a reverse stock split of 66.666 to 1.

During May 2014, BEI sold a total of 540,000 shares of common stock for a total of $135,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

·	our current lack of working capital;

·	inability to raise additional financing;

·	the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;

·	deterioration in general or regional economic conditions;

·	adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

·	inability to efficiently manage our operations;

·	inability to achieve future sales levels or other operating results; and

·	the unavailability of funds for capital expenditures.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Item 1A. Risk Factors” in this document.

Throughout this Quarterly Report references to “we”, “our”, “us”, “Blackcraft”, “BLCK”, “the Company”, and similar terms refer to Blackcraft Cult, Inc.

AVAILABLE INFORMATION

We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC's website at www.sec.gov or on our website at www.merculitedistributing.com. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at Blackcraft Cult, Inc., 1030 N Main Street, Unit B, Orange, CA 92867.

OVERVIEW AND OUTLOOK

General Business Development

Blackcraft Cult, Inc. was formed as a Nevada corporation in April of 2011. On March 18, 2014, we changed our name from Merculite Distributing, Inc. to Blackcraft Cult, Inc. The amendment occurred as a result of our stockholders approving the amendment at the 2013 Annual Meeting of Stockholders and a subsequent vote by the Board of Directors. Effective March 27, 2014, we completed the acquisition of Blackcraft Emoji Incorporated.

As a result of acquiring Blackcraft Emoji Incorporated, the Company is now involved in operating the Blackcraft lifestyle apparel brand rooted in the ideal of self-realization being superior to religious indoctrination and other society enforced norms.

Forward Split

On March 27, 2014, the Company effectuated a 66.666 to 1 forward split (the “Forward Split”) of its issued and unissued common shares as of April 7, 2014, the record date. Immediately after the forward split, the number of shares issued and outstanding increased from 2,979,330 to 198,620,014. The number of authorized shares increased from 100,000,000 to 6,666,600,000 common shares.

Business Overview

Blackcraft is a specialty retailer of apparel, accessories, and gift items for young men and women. Blackcraft is a lifestyle brand rooted in the ideal of self-realization being superior to religious indoctrination and other society enforced norms. The brand is darker in nature but positive in message, filling a void in the market which until Blackcraft, was non-existent. We generate revenues primarily online through our website and our retail store located Orange, California.

On July 11, 2014, Blackcraft Cult, Inc (OTCQB: BLCK) was verified for trading on the OTCQB®, the venture stage marketplace for early and developing companies.

Products

The Company currently features a product line consisting of a variety of clothing and accessories including T-shirts, sweatshirts, tank-top shirts, crewneck pullovers, women's leggings and crop tops, beanies, hats, patches, cell phone cases, candles, coffee, and much more to come. These products can be purchased at the Company’s website (www.blackcraftcult.com) or at the Company’s flagship store located in Orange, California which was opened on April 13, 2013.

All the items are profitable with the lion's share of the business currently coming from the sale of t-shirts and hooded pullovers. The brand identity follows the slogan, “Less is more”, with the merchandise predominantly single color prints that are black garments bodied with white ink.

Apart from the generic product line, Blackcraft also has a popular Limited Edition and Premium product line that is continually sold out. The Limited Edition products consist mostly of t-shirts, hooded pullovers, and women’s leggings with occasional exceptions. The Premium product line are products with more drastic changes in the wash, make, and feel creating a new appearance.

Apart from Blackcraft's individual products, partnerships, co-branding, and involvement from celebrities, bands, and other channels of influence will also create new merchandising with combined therefore new lines and looks of lifestyle products.

The Company is currently working on products that will be available in six months’ time in men’s and women’s polo shirts, accessories such as regular beanies, socks, shoes, backpacks and jewelry, and other specialized products. The future specialized products under consideration by Blackcraft that are unique to the Company and any retail brand consists of, among other products: artisan crafted Ouija boards, high quality straight from hell unholy water and a Blackcraft Emoji app for phones. The planned for products that will be available within 12 months include men’s and women’s denim jeans and vests, lingerie, cosmetics, lines of liquor (initially tequila and vodka), and a book describing Bobby and Jim’s, our management’s, journey in life and the significance of Blackcraft’s profound message.

Mobile Application – Blackcraft Zodiac

We recently created the Blackcraft Zodiac dating app. Unlike Tinder, Grindr, Hinge, and other dating apps, which rely solely on GPS, location-based technology, Blackcraft Zodiac uses the science of astrology to help singles meet their soul mate from the palm of their hand. Blackcraft Zodiac's push technology calls upon the universe to play match-maker and helps individuals find their celestial counterpart within the same building or room. The app is available for download in Google play and will be available in the Apple App Store soon. For more information, visit www.BCZodiac.com.

Marketing

We strive to increase sales and our brand recognition, enhance the customer shopping experience and reach out to new customers using social media; reliance on our customers and associates; compelling store design; and attending events.

The strategy to reach more of the target market is to strategically place, attend, host, promote, and gift both cyberwise and physically around the world. Being up-to-date on social media sites such as Facebook, Instagram, and Twitter, and always having something new and exciting about the brand or related subjects to intrigue and fascinate the following into Blackcraft's movement and lifestyle. The concept of unique products such as the Ouija Board and Unholy Water to promote the lifestyle in a way that is not ordinary or traditional. Attending events and parties to increase the hype and popularity of the image and message through social interaction and word-of-mouth.

Because the majority of the target market are people in their teens to mid-twenties, low to middle-class in social economic terms, share competitions that give away free but meaningful and substantial prizes would entice more followers. The outreach of celebrities and other relevant but common themed brands to cooperate, partner, and assist in the promotion of Blackcraft will link and create more recognition of the brand.

Competition

The apparel and accessory categories within the retail industry in which we operate are highly competitive and are subject to rapidly changing consumer demands and preferences. We compete with numerous retailers for vendors, teenage and young adult customers, suitable store locations and qualified associates and management personnel. We currently compete with street alternative stores located primarily in metropolitan areas; shopping mall-based teenage-focused retailers; big-box discount stores; mail order catalogs and websites; and with numerous potential competitors who may begin or increase efforts to market and sell products competitive with Blackcraft products. Increased competition could have a material adverse effect on our business, results of operations and financial condition.

Description of Property

We currently maintain our store at 1030 N. Main Street, Unit B, Orange, CA 92867. Our monthly rent for this location is $1,200.

Personnel

As of the date of this filing, we have 4 full-time employees, one of which is an officer of the Company. We also have 2 independent contractors, one of which is an officer of the Company.

RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended June 30, 2014 and June 30, 2013

Revenues. In the three months ended June 30, 2014, we generated $345,061 in revenue as compared to $300,546 for the three months ended June 30, 2013. The $44,515 increase in revenue for the three months ended June 30, 2014 was primarily due to increased product sales.

Cost of Sales. Cost of sales for the three months ended June 30, 2014 was $ 135,825 as compared to $139,468 for the three months ended June 30, 2013. The $3,643 decrease in cost of sales for the three months ended June 30, 2014 was primarily due to decreased product cost of goods sold and increased shipping costs.

Gross Profit. Gross profit for the three months ended June 30, 2014 was $209,236 as compared to $161,078 for the three months ended June 30, 2013. The $48,158 increase in gross profit for the three months ended June 30, 2014 was primarily due to increased sales of our products.

Expenses. Operating expenses totaled $244,166 during the three months ended June 30, 2014. Our expenses primarily consisted of general and administrative of $232,895, executive compensation of $11,013 and depreciation of $258.

General and administrative fees increased $185,663, from the three months ended June 30, 2014 to the three months ended June 30, 2013. This increase was primarily due to an increase in operational activities that incur fees, such as professional fees.

Executive compensation increased $11,013 from the three months ended June 30, 2014 to the three months ended June 30, 2013. Executive compensation fees increased due to an increase in stock issued to management as compensation.

Depreciation increased by $258 to $258 in the three months ended June 30, 2014 from $0 for the three months ended June 30, 2013. The increase was the result of an increase in fixed assets.

Net Loss. During the three months ended June 30, 2014, we generated a net loss of $34,944 as compared to $113,846 for the three months ended June 30, 2013. The $78,902 decrease in net income for the three months ended June 30, 2014 was primarily due to an decrease in revenue.

Results of Operations for the Six Months Ended June 30, 2014 and June 30, 2013

Revenues. In the six months ended June 30, 2014, we generated $782,359 in revenue as compared to $485,731 for the six months ended June 30, 2013. The $296,628 increase in revenue for the six months ended June 30, 2014 was primarily due to increased product sales.

Cost of Sales. Cost of sales for the six months ended June 30, 2014 was $273,298 as compared to $198,250 for the six months ended June 30, 2013. The $75,048 increase in cost of sales for the six months ended June 30, 2014 was primarily due to increased product cost of goods sold and increased shipping costs.

Gross Profit. Gross profit for the six months ended June 30, 2014 was $509,061 as compared to $287,481 for the six months ended June 30, 2013. The $221,580 increase in gross profit for the six months ended June 30, 2014 was primarily due to increased sales of our products.

Expenses. Operating expenses totaled $418,280 during the six months ended June 30, 2014. Our expenses primarily consisted of general and administrative of $405,750, executive compensation of $12,013 and depreciation of $517.

General and administrative fees increased $332,169, from the six months ended June 30, 2014 to the six months ended June 30, 2013. This increase was primarily due to an increase in operational activities that incur fees, such as professional fees.

Executive compensation increased $12,013 from the six months ended June 30, 2014 to the six months ended June 30, 2013. Executive compensation fees increased due to an increase in stock issued to management as compensation.

Depreciation increased by $517 to $517 in the six months ended June 30, 2014 from $0 for the six months ended June 30, 2013. The increase was the result of an increase in fixed assets.

Net Loss. During the six months ended June 30, 2014, we generated a net income of $90,767 as compared to $213,900 for the six months ended June 30, 2013. The $123,133 increase in net income for the six months ended June 30, 2014 was primarily due to an increase in revenue.

Liquidity and Capital Resources

As of June 30, 2014, we had $163,839 in cash. The following table provides detailed information about our net cash flow for all financial statement periods presented in this Quarterly Report. To date, we have financed our operations through the issuance of stock and borrowings.

The following table sets forth a summary of our cash flows for the six months ended June 30, 2014 and 2013:

	Six months ended June 30,
	2014			2013
Net cash used in operating activities	$	93,610		$	215,334
Net cash used in investing activities		(50,000	)		(3,127	)
Net cash provided by financing activities		42,170			(113,159	)
Net increase/(decrease) in Cash		85,780			99,048
Cash, beginning		78,059			-
Cash, ending	$	163,839		$	99,048

Operating activities

Net cash used in operating activities was $93,610 for the period ended June 30, 2014, as compared to $215,334 used in operating activities for the same period in 2013. The decrease in net cash used in operating activities was primarily due to a decrease in revenue.

Investing activities

Net cash used in investing activities was $50,000 for the period ended June 30, 2014, as compared to $0 used in investing activities for the same period in 2013. The net cash used in investing activities for the current period was primarily due to a strategic investment.

Financing activities

Net cash provided by financing activities for the period ended June 30, 2014 was $42,170, as compared to $113,159 for the same period of 2013. The increase of net cash provided by financing activities was mainly attributable to an increase the liabilities acquired in the reverse merger.

We believe that cash flow from operations will not meet our present and near-term cash needs and thus we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months. We will require additional cash resources due to changed business conditions, finalization and launch of our website, implementation of our strategy to expand our sales and marketing initiatives, increase brand and services awareness. If our own financial resources and then current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities will result in dilution to our stockholders. The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

Since inception, we have financed our cash flow requirements through issuance of common stock and debt financing. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending receipt of operating revenues. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient operating revenues in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan.

We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continually develop our line of products, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. See Note 1 – Summary of Significant Accounting Policies in our Notes to Consolidated Financial Statements.

Emerging Growth Company

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

This item is not applicable as we are currently considered a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

As required by Rule 13a-15 under the Exchange Act, as of the end of the Company’s last fiscal quarter, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s current management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), who concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting.

Management reviews the Company’s system of internal control over financial reporting and makes changes to the Company’s processes and systems to improve controls and increase efficiency, while ensuring that the Company maintains an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.

During the Company’s last fiscal quarter, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material legal proceedings.

Item 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Stock Issuances pursuant to Subscription Agreements

During the six months ended June 30, 2014, we sold 540,000 shares of common stock to a total of 3 accredited investors for a total purchase price of $135,000, all of which was paid in cash.

Stock Issuances pursuant to Celebrity Endorsement Agreements

During the six months ended June 30, 2014, we issued 200,000 shares of our restricted common stock to a total of 2 celebrities as compensation in connection with an endorsement agreement. However, subsequent to the period ended June 30, 2014, the parties rescinded the endorsement agreements in August 2014 and the shares are in the process of being cancelled.

We believe that the issuance and sale of the above securities were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2), Regulation D and/or Regulation S. The securities were issued directly by us and did not involve a public offering or general solicitation. The recipients of the securities were afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the recipients, immediately prior to issuing the securities, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The recipients had the opportunity to speak with our management on several occasions prior to their investment decision. There were no commissions paid on the issuance and sale of the shares.

Issuer Purchases of Equity Securities.

We did not repurchase any of our equity securities from the time of our inception through the period ended June 30, 2014.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No.		Description

31.1		Certification of Principal Executive Officer & Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Principal Executive Officer & Principal Financial Officer 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

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase

101.DEF*		XBRL Taxonomy Extension Definition Linkbase

101.LAB*		XBRL Taxonomy Extension Label Linkbase

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase

*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.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BLACKCRAFT CULT, INC.


Date: August 19, 2014	By:	/S/ Robert Schubenski
		Robert Schubenski
		President
		(Principal Executive Officer and duly authorized signatory)

BLACKCRAFT CULT, INC. - FORM 10-Q - August 19, 2014

Attached files

BLACKCRAFT CULT, INC. Reports