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BLACKCRAFT CULT, INC. - 10-Q/A - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) 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", "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. 11 -------------------------------------------------------------------------------- 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. 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. 12 -------------------------------------------------------------------------------- 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. 13 -------------------------------------------------------------------------------- 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. Going Concern RESULTS OF OPERATIONS Results of Operations for the Three Months Ended March 31, 2014 and March 31, 2013 RESULTS OF OPERATIONS Revenues. In the three months ended March 31, 2014, we generated $437,298 in revenue as compared to $158,287 for the three months ended March 31, 2013. The $279,011 increase in revenue for the three months ended March 31, 2014 was primarily due to increased product sales. Cost of Sales. Cost of sales for the three months ended March 31, 2014 was $137,473 as compared to $58,782 for the three months ended March 31, 2013. The $78,691 increase in cost of sales for the three months ended March 31, 2014 was primarily due to increased product cost of goods sold and increased shipping costs. Gross Profit. Gross profit for the three months ended March 31, 2014 was $299,825 as compared to $126,403 for the three months ended March 31, 2013. The $173,422 increase in gross profit for the three months ended March 31, 2014 was primarily due to increased sales of our products. Expenses. Operating expenses totaled $174,114 during the three months ended March 31, 2014. Our expenses primarily consisted of general and administrative of $172,855, executive compensation of $1,000 and depreciation of $259. General and administrative fees increased $146,506, from the three months ended March 31, 2014 to the three months ended March 31, 2013. This increase was primarily due to an increase in operational activities that incur fees, such as professional fees. Executive compensation increased $1,000 from the three months ended March 31, 2014 to the three months ended March 31, 2013. Executive compensation fees increased due to an increase in stock issued to management as compensation. Depreciation increased by $259 to $259 in the three months ended March 31, 2014 from $0 for the three months ended March 31, 2013. The increase was the result of an increase in fixed assets. Net Income. During the three months ended March 31, 2014, we generated a net income of $125,711 as compared to $100,054 for the three months ended March 31, 2013. The $25,657 increase in net income for the three months ended March 31, 2014 was primarily due to an increase in revenue. 14 -------------------------------------------------------------------------------- Liquidity and Capital Resources As of March 31, 2014, we had $65,039in 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 three months ended March 31, 2014 and 2013: Three months ended March 31, 2014 2013 Net cash used in operating activities (136,770 ) (97,098 ) Net cash used in investing activities (50,000 ) - Net cash provided by financing activities (99,790 ) (44,262 ) Net increase/(decrease) in Cash (13,020 52,836 Cash, beginning 78,059 - Cash, ending 65,039 52,836 Operating activities Net cash used in operating activities was $136,770 for the period ended March 31, 2014, as compared to $97,098 used in operating activities for the same period in 2013. The increase in net cash used in operating activities was primarily due to an increase in revenue. Investing activities Net cash used in investing activities was $50,000 for the period ended March 31, 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 March 31, 2014 was $99,790, as compared to $44,262 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. 15 -------------------------------------------------------------------------------- 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. |