Attached files
file | filename |
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EX-32.2 - CERTIFICATION - BLACKCRAFT CULT, INC. | blck_ex322.htm |
EX-32.1 - CERTIFICATION - BLACKCRAFT CULT, INC. | blck_ex321.htm |
EX-31.2 - CERTIFICATION - BLACKCRAFT CULT, INC. | blck_ex312.htm |
EX-31.1 - CERTIFICATION - BLACKCRAFT CULT, INC. | blck_ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended: September 30, 2016 | ||
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: 000-54898 | ||
| ||
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.) | |
|
| |
2830 E. Via Martens, Anaheim, CA | 92806 | |
(Address of principal executive offices) | (Zip Code) | |
|
| |
(949) 547-5916 | ||
(Registrant's telephone number, including area code) |
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 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]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Common Stock, $0.001 par value | 199,160,014 shares |
(Class) | (Outstanding as at November 21, 2016) |
BLACKCRAFT CULT, INC.
FORM 10-Q
For the quarter ended September 30, 2016
Table of Contents
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes thereto, which are included in the Company's December 31, 2015, Annual Report on Form 10-K previously filed with the Commission on April 14, 2016.
3
BLACKCRAFT CULT, INC.
BALANCE SHEETS
(UNAUDITED)
|
| September 30, |
| December 31, | ||
|
| 2016 |
| 2015 | ||
|
|
|
|
| ||
ASSETS |
|
|
|
| ||
|
|
|
|
| ||
Current assets: |
|
|
|
| ||
Cash and equivalents |
| $ | 493,980 |
| $ | 283,174 |
Accounts receivable |
|
| 2,077 |
|
| 305 |
Prepaid expenses |
|
| 7,500 |
|
| 938 |
Inventory |
|
| 239,954 |
|
| 118,625 |
Current portion of deferred tax asset |
|
| 10,292 |
|
| 10,292 |
Total current assets |
|
| 753,803 |
|
| 413,334 |
|
|
|
|
|
|
|
Fixed assets, net |
|
| 117,248 |
|
| 134,308 |
Deposits |
|
| 16,500 |
|
| 16,500 |
Deferred tax asset, net of current portion |
|
| 69,307 |
|
| 72,626 |
|
|
|
|
|
|
|
Total assets |
| $ | 956,858 |
| $ | 636,768 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
| $ | 45,540 |
| $ | 33,279 |
Accrued liabilities |
|
| 4,777 |
|
| 77,152 |
Income tax payable |
|
| 289,966 |
|
| 154,623 |
Note payable - short term |
|
| 76,377 |
|
| 12,268 |
Total current liabilities |
|
| 378,152 |
|
| 277,322 |
|
|
|
|
|
|
|
Long-term liabilities: |
|
|
|
|
|
|
Accrued interest payable - related party |
|
| 197 |
|
| 197 |
Notes payable - related party |
|
| 15,453 |
|
| 15,453 |
Note payable - long term |
|
| 43,536 |
|
| 53,253 |
Deferred tax liability |
|
| 5,121 |
|
| 3,070 |
Total long-term liabilities |
|
| 64,307 |
|
| 71,973 |
|
|
|
|
|
|
|
Total liabilities |
|
| 480,967 |
|
| 349,295 |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively |
|
| - |
|
| - |
Common stock, $0.001 par value, 6,666,600,000 shares authorized, 199,160,014 and 199,160,014, shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively |
|
| 199,160 |
|
| 199,160 |
Additional paid-in capital |
|
| (52,333) |
|
| (52,333) |
Retained earnings (deficit) |
|
| 329,064 |
|
| 143,646 |
Total stockholders' equity |
|
| 475,891 |
|
| 287,473 |
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 956,858 |
| $ | 636,768 |
The accompanying notes are an integral part of these financial statements.
4
BLACKCRAFT CULT, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
| For the three months ended |
| For the nine months ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 | ||||
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
| ||||
Product sales |
| $ | 491,605 |
| $ | 423,653 |
| $ | 1,480,696 |
| $ | 1,185,932 |
Tour income |
|
| 105,896 |
|
| - |
|
| 105,896 |
|
| - |
Shipping income |
|
| 53,482 |
|
| 42,886 |
|
| 184,604 |
|
| 145,233 |
Total revenue |
|
| 650,983 |
|
| 466,539 |
|
| 1,771,196 |
|
| 1,331,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
Product cost of goods sold |
|
| 190,887 |
|
| 173,276 |
|
| 567,474 |
|
| 343,370 |
Shipping costs |
|
| 50,423 |
|
| 50,630 |
|
| 185,567 |
|
| 154,032 |
Total cost of sales |
|
| 241,310 |
|
| 223,906 |
|
| 753,041 |
|
| 497,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 409,673 |
|
| 242,633 |
|
| 1,018,155 |
|
| 833,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 166,597 |
|
| 181,403 |
|
| 498,851 |
|
| 533,210 |
Executive compensation |
|
| 92,884 |
|
| 21,465 |
|
| 166,577 |
|
| 80,990 |
Depreciation |
|
| 5,686 |
|
| 2,403 |
|
| 17,060 |
|
| 3,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 265,167 |
|
| 205,271 |
|
| 682,488 |
|
| 617,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 4,387 |
|
| 250 |
|
| 6,536 |
|
| 394 |
Currency conversion |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
|
| 4,387 |
|
| 250 |
|
| 6,536 |
|
| 394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before provision for income taxes |
|
| 140,119 |
|
| 37,112 |
|
| 329,131 |
|
| 215,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Benefit for income taxes) |
|
| 58,160 |
|
| 20,649 |
|
| 140,713 |
|
| 97,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 81,959 |
| $ | 16,463 |
| $ | 188,418 |
| $ | 118,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common |
|
|
|
|
|
|
|
|
|
|
|
|
shares outstanding - basic |
|
| 199,160,014 |
|
| 199,160,014 |
|
| 199,160,014 |
|
| 199,160,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic |
|
| $0.00 |
|
| $0.00 |
|
| $0.00 |
|
| $0.00 |
The accompanying notes are an integral part of these financial statements.
5
BLACKCRAFT CULT, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| For the nine months |
| For the nine months | ||
|
| ended |
| ended | ||
|
| September 30, |
| September 30, | ||
|
| 2016 |
| 2015 | ||
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
| ||
Net income |
| $ | 230,885 |
| $ | 118,627 |
Adjustment to reconcile to net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation |
|
| 17,060 |
|
| 3,252 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
(Increase) Decrease in accounts receivable |
|
| (1,772) |
|
| (117) |
(Increase) Decrease in inventory |
|
| (121,327) |
|
| (29,169) |
(Increase) in prepaid expenses |
|
| (6,563) |
|
| (1,875) |
(Increase) in income tax payable |
|
| 140,713 |
|
| 97,290 |
Increase (Decrease) in accounts payable |
|
| 12,260 |
|
| (24,757) |
Increase (Decrease) in accrued liabilities |
|
| (72,375) |
|
| (52,826) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| 156,414 |
|
| 110,425 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
Purchase of furniture and fixtures |
|
| - |
|
| (138,448) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
| - |
|
| (138,448) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
Proceeds from notes payable - related party |
|
| - |
|
| - |
Proceeds from notes payable - short term |
|
| 97,000 |
|
| 16,016 |
Repayments to notes payable - short term |
|
| (33,479) |
|
| - |
Proceeds from notes payable - long term |
|
| - |
|
| 52,454 |
Repayments to notes payable - long term |
|
| (9,129) |
|
| - |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 54,392 |
|
| 68,470 |
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
| 210,806 |
|
| 40,447 |
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD |
|
| 283,174 |
|
| 222,836 |
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
| $ | 493,980 |
| $ | 263,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
Interest paid |
| $ | 6,536 |
| $ | 394 |
Income taxes paid |
| $ | - |
| $ | - |
The accompanying notes are an integral part of these financial statements.
6
BLACKCRAFT CULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 years ended December 31, 2015 and 2014 and notes thereto included in the Companys 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 Companys 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 2,234,580 shares of its Rule 144 restricted common stock in exchange for 100% of BEIs 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.
7
BLACKCRAFT CULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Nature of operations
Currently, the Companys 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 September 30, 2016, the Company had raw materials, work in process inventory, and finished goods inventory of $6,333, $10,316 and $223,305, respectively.
Revenue recognition
The Companys 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 Companys 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 Companys 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 September 30, 2016. 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.
8
BLACKCRAFT CULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 Companys financial statements.
NOTE 2 - FIXED ASSETS
The following is a summary of fixed assets:
|
| September 30, |
| December 31, | ||
|
| 2016 |
| 2015 | ||
Computer equipment |
| $ | 2,638 |
| $ | 2,638 |
Machinery and equipment |
|
| 3,127 |
|
| 3,127 |
Leasehold improvements |
|
| 7,252 |
|
| 7,252 |
Vehicles |
|
| 131,775 |
|
| 131,775 |
Fixed assets, total |
|
| 144,792 |
|
| 144,792 |
Less: accumulated depreciation |
|
| (27,544) |
|
| (10,484) |
Fixed assets, net |
| $ | 117,248 |
| $ | 134,308 |
Depreciation expense for the nine months ended September 30, 2016 and 2015 was $17,060 and $3,252 respectively.
NOTE 3 - INCOME TAXES
For financial reporting purposes, income before taxes include the following components:
|
| September 30, 2016 |
| September 30, 2015 | ||
|
|
|
|
| ||
United States |
| $ | 329,131 |
| $ | 215,917 |
|
|
|
|
|
|
|
Total |
| $ | 329,131 |
| $ | 215,917 |
9
BLACKCRAFT CULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities as of September 30, 2016 and December 31, 2015 are as follows:
|
| September 30, 2016 |
| December 31, 2015 | ||
|
|
|
|
| ||
Property and equipment bases and depreciation differences |
| $ | 5,121 |
| $ | 3,070 |
Total deferred tax liabilities |
| $ | 5,121 |
| $ | 3,070 |
|
|
|
|
|
|
|
Net operating loss carryforwards |
| $ | 79,599 |
| $ | 82,918 |
Total deferred tax assets |
| $ | 79,599 |
| $ | 82,918 |
|
|
|
|
|
|
|
Net deferred income taxes |
| $ | 74,478 |
| $ | 79,848 |
The expense for income taxes consists of:
|
| September 30, 2016 |
| September 30, 2015 | ||
|
|
|
|
| ||
Current: |
|
|
|
| ||
Federal |
| $ | 111,611 |
| $ | 67,458 |
State |
|
| 23,732 |
|
| 28,781 |
|
| $ | 135,343 |
| $ | 96,239 |
Deferred and other: |
|
|
|
|
|
|
Federal |
| $ | 4,404 |
| $ | 2,958 |
State |
|
| 966 |
|
| 1,262 |
|
|
|
|
|
|
|
Total |
| $ | 140,713 |
| $ | 100,459 |
The reconciliation of statutory tax rate to effective tax rate is:
|
| September 30, 2016 |
| September 30, 2015 |
|
|
|
|
|
Statutory tax rate |
| 42.84% |
| 42.84% |
Effect of lower tax brackets |
| -0.09% |
| -2.76% |
Meals and entertainment |
| 1.59% |
| 1.39% |
Change in valuation allowance |
| 0.00% |
| 0.00% |
Federal benefit of state tax |
| -2.79% |
| -2.79% |
Other |
| 12.45% |
| 12.45% |
|
|
|
|
|
Effective tax rate |
| 54.00% |
| 51.13% |
10
BLACKCRAFT CULT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - NOTES PAYABLE AND NOTES PAYABLE - RELATED PARTY
As of September 30, 2016, the Company received a loan totaling $97,000 from a third party. The Company was charged a one-time fee of $2,972 and is due upon demand.
As of September 30, 2016, the Company received a loan totaling $15,453 from an officer, director and shareholder. The loan bears no interest and is due upon demand.
Interest expense for the nine months ended September 30, 2016 was $6,536.
NOTE 5 - NOTES PAYABLE FOR VEHICLE FINANCING OBLIGATION
On September 6, 2015, the Company acquired a new company vehicle on credit. The cost basis is $131,775. The Company paid $63,305 as a down payment. The amount financed by the seller is $68,470, and the Company makes monthly payments of $1,335. This note bears interest at the annual percentage rate of 6.25%, and the term is 60 months.
NOTE 6 - STOCKHOLDERS EQUITY
The Company is authorized to issue 6,666,600,000 shares of its $0.001 par value common stock and 10,000,000 shares of its $0.001 par value preferred stock.
During the nine months ended September 30, 2016, there have been no other issuances of common stock.
NOTE 7 - EFFECT OF PRIOR YEAR MISSTATEMENT
The Company has reviewed its deferred tax assets, deferred tax liabilities and income tax for the nine months ended September 30, 2015 and has determined that there was an immaterial error. The Company believes that this prior year error is immaterial and has determined a restatement is not necessary. The effect of the restatement is below:
| As Originally Filed |
| Adjustment |
| As Currently Filed | |||
Deferred tax asset | $ | - |
| $ | 84,025 |
| $ | 84,025 |
|
|
|
|
|
|
|
|
|
Income tax payable |
| 138,761 |
|
| 15,871 |
|
| 154,632 |
Deferred tax liability |
| - |
|
| 1,569 |
|
| 1,569 |
|
|
|
|
|
|
|
|
|
Income tax expense | $ | 76,641 |
| $ | 19,598 |
| $ | 96,239 |
NOTE 8 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements are issued and there are no material subsequent events to disclose.
11
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.
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., 2830 E. Via Martens, Anaheim, CA 92806.
Background
On March 26, 2014, Blackcraft Cult, Inc., formerly Merculite Distribution, Inc., entered into a reverse triangular merger for the acquisition of 100% of ownership of Blackcraft Emoji Incorporated, a California corporation (BEI). Effective March 27, 2014, we completed the acquisition of BEI. As a result of acquiring BEI, our entire operations are currently based upon the operations of the assets acquired.
Overview of Operations
Blackcraft Cult, Inc. is a specialty online retailer of apparel, accessories, and gift items for 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. Our product line consists 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, and coffee. We sell these products through our Internet website located at www.blackcraftcult.com (Website). Consumers are able to access and purchase our products 24 hours a day from the convenience of a computer, Internet-enabled mobile telephone or other Internet-enabled devices. A significant portion of our sales are to customers located in the United States. During the nine months ended September 30, 2016 and 2015, no single customer accounted for more than 1% of our total net revenue.
12
Our business includes sales made to individual consumers, which are fulfilled from our warehouse in Orange, California. During the nine months ended September 30, 2016 and 2015, we fulfilled approximately 95% of our order volume through our warehouse, which generally ships between 80 and 100 packages per day.
We require verification of receipt of payment, or authorization from credit card or other payment vendors whose services we offer to our customers (such as PayPal and BillMeLater), before we ship products to consumers.
Results of Operation
Revenues and Costs of Goods Sold
During the three month periods ended September 30, 2016 and 2015, our revenues were distributed, as follows:
|
|
| Change | |||||||
Revenue Source | 2016 |
| 2015 |
| $ |
| % | |||
Product sales | $ | 491,605 |
| $ | 423,653 |
| $ | 67,952 |
| 16 % |
Tour income |
| 105,896 |
|
| - |
|
| 105,896 |
| - % |
Shipping income |
| 53,482 |
|
| 42,886 |
|
| 10,596 |
| 25 % |
|
|
|
|
|
|
|
|
|
|
|
Total Revenues | $ | 650,983 |
| $ | 466,539 |
| $ | 184,444 |
| 40 % |
After taking into account cost of sales of $241,310 during the three months ended September 30, 2016, gross profit during the period totaled $409,673. In comparison, cost of sales during the quarter ended September 30, 2015 was $223,906, leading to a gross profit of $242,633.
During the nine month periods ended September 30, 2016 and 2015, our revenues were distributed, as follows:
|
|
| Change | |||||||
Revenue Source | 2016 |
| 2015 |
| $ |
| % | |||
Product sales | $ | 1,480,696 |
| $ | 1,185,932 |
| $ | 294,764 |
| 25 % |
Shipping income |
| 105,896 |
|
| - |
|
| 105,896 |
| - % |
Shipping income |
| 184,604 |
|
| 145,233 |
|
| 39,371 |
| 27 % |
|
|
|
|
|
|
|
|
|
|
|
Total Revenues | $ | 1,771,196 |
| $ | 1,331,165 |
| $ | 440,031 |
| 33 % |
Cost of sales in the nine month period ended September 30, 2016 was $753,041, which was $255,639 higher than cost of sales of $497,402 in the comparable period ended September 30, 2015. Resultant gross profit during the nine months ended September 30, 2016 and 2015 was $1,018,155 and $833,763, respectively.
There can be no assurance that we will continue to experience similar revenue growth in future periods, sustain current revenue levels or that we will be able to replace revenues from our current advertisers with revenues from others.
Operating Expenses
In the course of our operations, we incur operating expenses composed primarily of payroll and general and administrative costs. General and administrative expenses are essentially the cost of doing business, and encompass, without limitation, the following: licenses; taxes; general office expenses, such as postage, supplies and printing; utilities; bank charges; website costs; and other miscellaneous expenditures not otherwise classified. For the three months ended September 30, 2016 and 2015, the components of our operating expenses were, as follows:
13
|
|
| Change | |||||
Expense | 2016 |
| 2015 |
| $ | % | ||
General and administrative | $ | 166,597 |
| $ | 181,403 | $ | (14,806) | (8) % |
Executive compensation |
| 92,884 |
|
| 21,465 |
| 71,419 | 333 % |
Depreciation |
| 5,686 |
|
| 2,403 |
| 3,283 | 137 % |
|
|
|
|
|
|
|
|
|
Total Operating Expenses | $ | 265,167 |
| $ | 205,271 | $ | 59,896 | 29 % |
In the three months ended September 30, 2016, operating expenses were $265,167, as compared to $205,271 in the three months ended September 30, 2015. The $59,896, or 29%, increase in operating expenses for the three months ended September 30, 2016 was primarily attributable to an increase in executive compensation paid to our officers and directors compared to the comparable period ended September 30, 2015.
For the nine months ended September 30, 2016 and 2015, the components of our operating expenses were, as follows:
|
|
| Change | |||||
Expense | 2016 |
| 2015 |
| $ | % | ||
General and administrative | $ | 498,851 |
| $ | 533,210 | $ | (34,359) | (6)% |
Executive compensation |
| 166,577 |
|
| 80,990 |
| 85,587 | 106% |
Depreciation |
| 17,060 |
|
| 3,252 |
| 13,808 | 425% |
|
|
|
|
|
|
|
|
|
Total Operating Expenses | $ | 682,488 |
| $ | 617,452 | $ | 65,036 | 11 % |
In the nine months ended September 30, 2016, operating expenses were $682,488, as compared to $617,452 in the nine months ended September 30, 2015. The $65,036, or 11%, increase in operating expenses for the nine months ended September 30, 2016 was primarily attributable to an increase in executive compensation paid to our officers and directors.
Our management cautions that the variations in all expense categories are not accurate indications of long-term trends and ongoing expenses will continue to vary drastically from period to period.
Income Taxes and Net Income
During the three months ended September 30, 2016, we realized income before provision for income taxes of $140,119 compared to income of $37,112 in the comparable period ended September 30, 2015. After deducting income tax expense of $58,160, net income in quarter ended September 30, 2016 was $81,959. During the three months ended September 30, 2015, we had net income of $16,463, after accounting for income taxes during the period of $20,649.
In the nine months ended September 30, 2016, our net income totaled $188,418 after deducting provision for income taxes of $140,713. In comparison, we realized net income of $118,627 during the nine month period ended September 30, 2015, after income tax expense of $97,290.
Seasonality of Business and Quarterly Results
Our business varies with general seasonal trends that are characteristic of the retail and apparel industries. As a result, we generate a higher percentage of our annual net sales and profitability in the fourth quarter of our fiscal year, which includes the holiday selling season, compared to other quarters of our fiscal year. If for any reason our sales were below seasonal norms during the fourth quarter of our fiscal year, our annual operating results would be negatively impacted. Because of the seasonality of our business, results for any quarter are not necessarily indicative of results that may be achieved for a full fiscal year.
14
Liquidity and Capital Resources
As of September 30, 2016, we had $493,980 of cash on hand compared to cash on hand of $263,283 as of September 30, 2015. This increase in cash was primarily generated organically through operating activities, as well as a proceeds from short term notes payable in the amount of $97,000. During the nine months ended September 30, 2016, we generated cash from operating activities of $156,414, compared to generating cash from operating activities of $110,425 in the comparable period ended September 30, 2015. The increase in cash generated from operations is primarily attributable to acquisition of inventory offset by an increase of income tax payable.
Cash utilized in investing activities was $0 and $138,448 during the periods ended September 30, 2016 and 2015, respectively. Cash used was due primarily to purchase a company vehicle during 2015.
Cash provided by financing activities was $54,392 and $68,470 for the nine months periods ended September 30, 2016 and 2015, respectively. Cash provided by financing activities was due primarily to the issuance of notes payable in the amount of $97,000.
Current and Future Sources of Liquidity
Our principal sources of liquidity are cash flows generated from operations, and our existing cash and cash equivalents. We believe that the cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months. We expect that continued focus on acquiring new customers will enable us to increase profitable revenues and continue to generate cash flows from operating activities.
If we do not generate sufficient cash from operations, face unanticipated cash needs or do not otherwise have sufficient cash, we have the ability to reduce certain expenses depending on the level of business operation.
Based on current expectations, we believe that our existing cash and our net cash provided by operating activities and other potential sources of cash will be sufficient to meet our cash requirements. Our ability to meet these requirements will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
We expect to use our cash to invest in our core business, including new product innovations, advertising and marketing. Other than normal operating expenses, cash requirements for fiscal 2016 are expected to consist primarily of capital expenditures and additional investments in advertising and marketing efforts.
If our own financial resources and current cash-flows from operations are insufficient to satisfy our capital requirements, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, to augment our working capital. In the future we need to generate sufficient revenues in order to eliminate or reduce the need to sell additional stock. Our failure to generate sufficient revenues or profits or to obtain additional financing or raise additional capital could have a material adverse effect on our operations and on our ability to achieve our intended business objectives. Any projections of future cash needs and cash flows are subject to substantial uncertainty.
Our management does not expect to incur research and development costs.
We do not have any off-balance sheet arrangements.
We currently do not own any significant plant or equipment that we would seek to sell in the near future.
We have not paid for expenses on behalf of any of our directors. Additionally, we believe that this fact shall not materially change.
15
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The Securities and Exchange Commission ("SEC") has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies, estimates and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see Note 1 Summary of Significant Accounting Policies in our Notes to Financial Statements. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates. Our critical accounting policies are as follows:
Revenue Recognition
We derive our revenue from merchandise sales. Revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. We record revenue from the sale of merchandise upon shipment or delivery of the products to the customer. We also record the shipping income when the products are sent to the customer.
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 Companys financial statements.
Off-Balance Sheet Arrangements
We do 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
This item is not required for smaller reporting companies.
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 Companys last fiscal quarter, the Company carried out an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Companys current management, including the Companys Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), who concluded that the Companys 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 SECs 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 Companys Chief Executive Officer and Principal Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.
16
Changes in internal control over financial reporting.
Management reviews the Companys system of internal control over financial reporting and makes changes to the Companys 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 Companys last fiscal quarter, there was no change in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys 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.
17
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
During the quarter ended September 30, 2016, we did not have any sales of unregistered securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit Number | Name and/or Identification of Exhibit |
|
|
31 | Rule 13a-14(a)/15d-14(a) Certifications |
|
|
32 | Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350) |
|
|
101 | Interactive Data File |
|
|
| (INS) XBRL Instance Document |
| (SCH) XBRL Taxonomy Extension Schema Document |
| (CAL) XBRL Taxonomy Extension Calculation Linkbase Document |
| (DEF) XBRL Taxonomy Extension Definition Linkbase Document |
| (LAB) XBRL Taxonomy Extension Label Linkbase Document |
| (PRE) XBRL Taxonomy Extension Presenation Linkbase Document |
18
SIGNATURES
Pursuant to the requirements of the 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. | ||
(Registrant) | ||
| ||
Signature | Title | Date |
|
|
|
/s/ James Somers | President | November 21, 2016 |
James Somers |
|
|
19