1. ORGANIZATION AND SUMMARY OF SIGNIFICANT
Bluegate Corporation (Bluegate
or the Company") is a Nevada Corporation that consists of the networking service (carrier/circuit) business. It provides
internet connectivity to corporate clients on a subscription basis; essentially operating as a value added provider.
The Company was originally incorporated as
Solis Communications, Inc. on July 23, 2001 and adopted a name change to Crescent Communications Inc. upon completion of a reverse
acquisition of Berens Industries, Inc. In 2004, we changed our name to Bluegate Corporation.
Following is a summary of the Company's significant
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America 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 dates of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could
differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.
Certain prior year amounts have been reclassified
to conform to the current year presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term
investments with an original maturity of three months or less when purchased, to be cash equivalents.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL
Accounts receivable are amounts due on sales,
are unsecured and are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus
accounts receivable do not bear interest although a finance charge may be applied to such receivables that are more than thirty
days past due. Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions
for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance
and current economic conditions. In February 2008, as a result of the transaction described in footnote 5 note payable
to related party and footnote 8 stockholders deficit, as condition to and as additional consideration for SAI Corporations
(SAIC) agreement to lend funds to the Company, the Company granted SAIC a security interest in its assets as more
specifically detailed in the Promissory Note and Security Agreement.
The Company uses the liability method of accounting
for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of assets and liabilities and their financial amounts at year-end. The Company provides a valuation
allowance to reduce deferred tax assets to their net realizable value.
ASC 718, Accounting for Stock-Based
Compensation" established financial accounting and reporting standards for stock-based employee compensation plans. It defines
a fair value based method of accounting for an employee stock option or similar equity instrument. In January 2006, Bluegate implemented
ASC 718, and accordingly, Bluegate accounts for compensation cost for stock option plans in accordance with ASC 718.
Bluegate accounts for share based payments
to non-employees in accordance with ASC 505-50 Accounting for Equity Instruments Issued to Non-Employees for Acquiring,
or in Conjunction with Selling, Goods or Services.
EMBEDDED CONVERSION FEATURES
Bluegate evaluates embedded conversion features
within convertible debt and convertible preferred stock under ASC 815-15 to determine whether the embedded conversion feature should
be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.
If the conversion feature does not require derivative treatment under ASC 815-15, the instrument is evaluated under ASC 470-20
and ASC 470-20 for consideration of any beneficial conversion feature.
DERIVATIVE FINANCIAL INSTRUMENTS
Bluegate does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. Bluegate evaluates all of it financial instruments to determine
if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued
at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial
instruments, Bluegate uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance
sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within
12 months of the balance sheet date.
On December 29, 2011 we received notification
that the remaining 6,000,000 warrants with an anti-dilutive provision issued to related party, SAI Corporation, were to be canceled;
therefore there were no derivative financial instruments outstanding at December 31, 2012 and 2011.
Revenue is recognized when persuasive evidence
of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability
is reasonably assured.
Revenue is recognized based upon contractually
determined monthly service charges to individual customers. Some services are billed in advance and, accordingly, revenues are
deferred until the period in which the services are provided. At December 31, 2012 and 2011, deferred service revenue was $7,813
and $16,207 respectively.
LOSS PER SHARE
Basic and diluted net loss per share is computed
on the basis of the weighted average number of shares of common stock outstanding during each period. Potentially dilutive options
that were outstanding during 2012 and 2011 were not considered in the calculation of diluted earnings per share because the Company's
net loss rendered their impact anti-dilutive. Accordingly, basic and diluted losses per share were identical for the years ended
December 31, 2012 and 2011.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company does not expect any recent accounting
pronouncements to have a material impact to its financial position or result of operations.