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EXCEL - IDEA: XBRL DOCUMENT - Logicquest Technology, Inc.Financial_Report.xls
EX-31.1 - CERTIFICATION REQUIRED BY RULE 13A - 14(A) OR RULE 15D - 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF THE CHIEF EXECUTIVE OFFICER - Logicquest Technology, Inc.bgat_31z1.htm
EX-32.2 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350), OF THE CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER - Logicquest Technology, Inc.bgat_32z2.htm
EX-31.2 - CERTIFICATION REQUIRED BY RULE 13A - 14(A) OR RULE 15D - 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF THE CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER - Logicquest Technology, Inc.bgat_31z2.htm
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350), OF THE CHIEF EXECUTIVE OFFICER - Logicquest Technology, Inc.bgat_32z1.htm

 



 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


þ

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

 

For the quarterly period ended September 30, 2013

 

 

¨

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: 000-22711


BLUEGATE CORPORATION

(Exact name of registrant as specified in its charter)


Nevada

76-0640970

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 


701 North Post Oak Road, Suite 350,

Houston, Texas


77024

(Address of principal executive offices)

(Zip Code)

 

 

voice: 713-686-1100

fax: 713-682-7402

Issuer's telephone number


Indicate by check mark whether the registrant :(1) has 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 filings requirements for the past 90 days. Yes þ No ¨


Indicate by check mark whether the registrant has submitted electronically and posted on its 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 þ 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 the definitions in of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

þ


Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ


APPLICABLE ONLY TO CORPORATE ISSUERS


Indicate the number of shares outstanding of each the issuer's classes of common stock, as of the latest practicable date: 46,033,565 common shares outstanding as of October 8, 2013.

 

 




 



TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

Unaudited Financial Statements

F-1

 

 

Balance Sheets as of September 30, 2013 and December 31, 2012

F-1

 

 

Statements of Operations for the three and nine months ended September 30, 2013 and 2012

F-2

 

 

Statement of Stockholders’ Deficit for the nine months ended September 30, 2013

F-3

 

 

Statements of Cash Flows for the nine months ended September 30, 2013 and 2012

F-4

 

 

Notes to Financial Statements

F-5

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

I-1

 

 

ITEM 4. CONTROLS AND PROCEDURES

I-6

 

 

PART II. OTHER INFORMATION

 

 

 

ITEM 1. LEGAL PROCEEDINGS

II-1

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

II-1

 

 

ITEM 5. OTHER INFORMATION

II-1

 

 

ITEM 6. EXHIBITS

II-1

 

 

SIGNATURES

II-2






 


PART I. FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS


BLUEGATE CORPORATION

BALANCE SHEETS

UNAUDITED


 

 

September 30,

 

 

December 31,

 

 

 

2013

 

 

2012

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

954

 

 

$

3,762

 

Accounts receivable, net

 

 

2,198

 

 

 

3,233

 

Prepaid expenses and other

 

 

10,435

 

 

 

10,435

 

Total current assets

 

$

13,587

 

 

$

17,430

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,905

 

 

$

12,435

 

Accounts payable to related party

 

 

667,766

 

 

 

519,241

 

Accrued liabilities

 

 

2,294

 

 

 

20,837

 

Note payable to related party

 

 

1,291,600

 

 

 

1,245,000

 

Accrued liabilities to related parties

 

 

670,639

 

 

 

438,051

 

Deferred revenue

 

 

776

 

 

 

7,813

 

Total current liabilities

 

 

2,644,980

 

 

 

2,243,377

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Undesignated preferred stock, $.001 par value, 9,999,942 shares authorized, none issued and outstanding

 

 

-

 

 

 

-

 

Series C Convertible Non-Redeemable preferred stock, $.001 par value, 48 shares authorized, issued and outstanding at September 30, 2013 and December 31, 2012; $12,500 per share liquidation preference ($600,000 aggregate liquidation preference at September 30, 2013)

 

 

-

 

 

 

-

 

Series D Convertible Non-Redeemable preferred stock, $.001 par value, 10 shares authorized, issued and outstanding at September 30, 2013 and December 31, 2012; $8,725 per share liquidation preference ($87,250 aggregate liquidation preference at September 30, 2013)

 

 

-

 

 

 

-

 

Common stock, $.001 par value, 50,000,000 shares authorized, 46,033,565 shares issued and outstanding at September 30, 2013 and December 31, 2012

 

 

46,034

 

 

 

46,034

 

Additional paid-in capital

 

 

22,400,286

 

 

 

22,400,286

 

Accumulated deficit

 

 

(25,077,713

)

 

 

(24,672,267

)

Total stockholders’ deficit

 

 

(2,631,393

)

 

 

(2,225,947

)

Total liabilities and stockholders’ deficit

 

$

13,587

 

 

$

17,430

 



See accompanying notes to unaudited financial statements




F-1



 


BLUEGATE CORPORATION

STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

UNAUDITED


 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service revenue

 

$

24,473

 

 

$

36,096

 

 

$

80,634

 

 

$

112,471

 

Cost of services

 

 

24,610

 

 

 

27,123

 

 

 

76,965

 

 

 

92,414

 

Gross profit

 

 

(137

)

 

 

8,973

 

 

 

3,669

 

 

 

20,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

53,730

 

 

 

59,487

 

 

 

176,526

 

 

 

183,165

 

Loss from operations

 

 

(53,867

)

 

 

(50,514

)

 

 

(172,857

)

 

 

(163,108

)

Interest expense

 

 

(78,714

)

 

 

(76,336

)

 

 

(232,589

)

 

 

(227,049

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(132,581

)

 

$

(126,850

)

 

$

(405,446

)

 

$

(390,157

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share – basic and diluted

 

$

(0.00

)

 

$

(0.00

)

 

$

(0.01

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

 

46,033,565

 

 

 

46,033,565

 

 

 

46,033,565

 

 

 

46,033,565

 



See accompanying notes to unaudited financial statements





F-2



 


BLUEGATE CORPORATION

STATEMENT OF STOCKHOLDERS' DEFICIT

NINE MONTHS ENDED SEPTEMBER 30, 2013

UNAUDITED


 

 

 

 

 

 

 

 

PREFERRED STOCK

 

 

ADDITIONAL

 

 

 

 

 

 

 

 

 

COMMON STOCK

 

 

SERIES C

 

 

SERIES D

 

 

PAID-IN

 

 

ACCUMULATED

 

 

 

 

 

 

SHARES

 

 

CAPITAL

 

 

SHARES

 

 

CAPITAL

 

 

SHARES

 

 

CAPITAL

 

 

CAPITAL

 

 

DEFICIT

 

 

TOTAL

 

Balance at December 31, 2012

 

 

46,033,565

 

 

$

46,034

 

 

 

48

 

 

$

-

 

 

 

10

 

 

$

-

 

 

$

22,400,286

 

 

$

(24,672,267

)

 

$

(2,225,947

)

Net loss

    

  

 

  

  

 

 

  

  

  

 

  

  

 

 

  

  

  

 

  

  

 

 

  

  

 

 

  

  

 

(405,446

)

  

 

(405,446

)

Balance at September 30, 2013

 

 

46,033,565

 

 

$

46,034

 

 

 

48

 

 

$

-

 

 

 

10

 

 

$

-

 

 

$

22,400,286

 

 

$

(25,077,713

)

 

$

(2,631,393

)



See accompanying notes to unaudited financial statements





F-3



 


BLUEGATE CORPORATION

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

UNAUDITED


 

 

2013

 

 

2012

 

Cash flows from operating activities:

  

                         

  

  

                         

  

Net loss

 

$

(405,446

)

 

$

(390,157

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,035

 

 

 

(268

)

Prepaid expenses and other current assets

 

 

-

 

 

 

(5,000

)

Accounts payable and accrued liabilities

 

 

(19,073

)

 

 

(13,085

)

Accounts payable to related party

 

 

148,525

 

 

 

149,077

 

Accrued liabilities to related parties

 

 

232,588

 

 

 

227,049

 

Deferred revenue

 

 

(7,037

)

 

 

(3,419

)

Net cash used in operating activities

 

 

(49,408

)

 

 

(35,803

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from related party short term debt

 

 

46,600

 

 

 

35,000

 

Net cash provided by financing activities

 

 

46,600

 

 

 

35,000

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(2,808

)

 

 

(803

)

Cash and cash equivalents at beginning of period

 

 

3,762

 

 

 

5,937

 

Cash and cash equivalents at end of period

 

$

954

 

 

$

5,134

 

 

 

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

-

 

 

$

-

 

Cash paid for income taxes

 

$

-

 

 

$

-

 



See accompanying notes to unaudited financial statements




F-4



 


BLUEGATE CORPORATION

NOTES TO FINANCIAL STATEMENTS

UNAUDITED


1. BASIS OF PRESENTATION


The accompanying unaudited interim financial statements of Bluegate Corporation (“we”, “our”, “Bluegate” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Bluegate's Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2012 as reported in the Form 10-K have been omitted.


2. GOING CONCERN CONSIDERATIONS


During the nine months ended September 30, 2013, Bluegate has been unable to generate cash flows sufficient to support its operations and has been dependent on debt and equity raised from qualified individual investors and loans from a related party. In addition to negative cash flow from operations, Bluegate has experienced recurring net losses, and has a negative working capital and shareholders’ deficit.


These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if Bluegate is unable to continue as a going concern.


3. ACCOUNTS PAYABLE TO RELATED PARTY


The accounts payable to related party balance is owed to Sperco, LLC ("SLLC") (an entity controlled by Stephen J. Sperco, Bluegate's CEO/President/Director) and is summarized below:


 

 

9/30/2013

 

 

12/31/2012

 

During November 2009, Bluegate entered into an Asset Sale and Purchase Agreement to sell certain assets to SLLC, and as a result, these balances represent funds collected by Bluegate on behalf of SLLC.

 

$

98,766

 

 

$

98,741

 

As a result of the November 2009 transaction, commencing January 1, 2010, Bluegate had no employees and agreed to pay SLLC a monthly amount of $15,000 for management, accounting and administrative services, as well as, infrastructure and network engineering support. In August 2012 the monthly amount was $18,500 and beginning September 2012 the monthly amount was revised to $15,500 to reflect support for a new project engagement.

 

 

595,000

 

 

 

455,500

 

From July 1, 2010 through July 31, 2011, SLLC agreed to pay Bluegate a monthly amount of $4,000 for office space and associated services for the Sperco entities

 

 

(52,000

)

 

 

(52,000

)

Commencing August 1, 2011, SLLC and Bluegate moved from Suite 600 to Suite 350 and Bluegate agreed to pay SLLC $1,000 rent on a month-to-month basis

 

 

26,000

 

 

 

17,000

 

 

 

$

667,766

 

 

$

519,241

 




F-5



 


4. NOTE PAYABLE TO RELATED PARTY


Note payable at September 30, 2013 and December 31, 2012 is summarized below:


 

 

9/30/2013

 

 

12/31/2012

 

Secured note payable to related party: During 2007, the Company entered into a line of credit agreement with SAI Corporation ("SAIC"), a corporation controlled by our CEO, Stephen J. Sperco, to borrow up to $500,000. The line of credit has been amended several times due to Bluegate’s need to borrow funds for working capital purposes and has been increased to $1,295,000 from the previous balance of $1,285,000. As a condition to and as additional consideration for SAIC’s agreement to lend additional 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. Principal and interest is due on demand. Interest is at the rate of 15% per annum and payments are due and payable monthly at the end of each month until the outstanding principal balance is paid in full. The Company agreed to pay a late charge in the amount of $10,000 on any interest payment more than fifteen days delinquent.

During the nine months ended September 30, 2013 and the year ended December 31, 2012, Bluegate borrowed $46,600 and $45,000, respectively for working capital purposes.

 

$

1,291,600

 

 

$

1,245,000

 


5. ACCRUED LIABILITIES TO RELATED PARTIES


The accrued liabilities to related parties is summarized below:


 

 

9/30/2013

 

 

12/31/2012

 

Accrued interest on the note payable to SAIC

 

$

626,720

 

 

$

394,132

 

Fees accrued through March 31, 2009 to former Board of Director, Dale Geary

 

 

20,419

 

 

 

20,419

 

Fees accrued through March 31, 2009 to Board of Director, Stephen J. Sperco

 

 

17,500

 

 

 

17,500

 

Vehicle allowance accrued through December 31, 2008 to Stephen J. Sperco

 

 

6,000

 

 

 

6,000

 

 

 

$

670,639

 

 

$

438,051

 


6. EQUITY TRANSACTIONS


As of September 30, 2013, the company had outstanding: (i) 46,033,565 shares of common stock and, (ii) preferred stock that is convertible into 1,450,000 shares of common stock, resulting on a fully diluted basis, 47,483,565 shares of common stock. The company had 50,000,000 shares of common stock authorized by our Articles of Incorporation.


7. LEASE COMMITMENT


Commencing August 1, 2011, SLLC and Bluegate moved from Suite 600 to Suite 350 and Bluegate agreed to pay SLLC $1,000 rent on a month-to-month basis.







F-6



 


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


FORWARD LOOKING STATEMENT

This Management's Discussion and Analysis of Financial Condition and Results of Operations as of September 30, 2013 and for the nine months then ended, should be read in conjunction with the audited financial statements and notes thereto set forth in our annual report on Form 10-K for 2012.


Certain statements contained in this report, including, without limitation, statements containing the words, "likely", "forecast", "project", "believe", "anticipate", "expect", and other words of similar meaning, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such factors or to announce publicly the results of any revision of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments. In addition to the forward-looking statements contained in this Form 10-Q, the following forward-looking factors could cause our future results to differ materially from our forward-looking statements: competition, capital resources, credit resources, funding, government compliance and market acceptance of our products and services.


OUR BUSINESS

Bluegate consists of the networking service (carrier/circuit) business that provides internet connectivity to corporate clients on a subscription basis; essentially operating as a value added provider.


COMPETITION

Most of our competitors have greater financial and other resources than we have, and there is no assurance that we will be able to successfully compete.


Our web site is www.bluegate.com.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates. We base our estimates on historical experience and on assumptions that are believed to be reasonable. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.


We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.


REVENUE RECOGNITION

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.


STOCK-BASED COMPENSATION

Accounting Standard 718, "Accounting for Stock-Based Compensation" ("ASC 718") 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.




I-1



 


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”.


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 warrants with an anti-dilutive provision issued to related party, SAI Corporation, were to be canceled; therefore there were no derivative financial instruments outstanding since December 29, 2011.


GOING CONCERN

We remain dependent on outside sources of funding for continuation of our operations. Our independent registered public accounting firm issued a going concern qualification in their report dated January 22, 2013 (included in our annual report on Form 10-K for the year ended December 31, 2012), which raises substantial doubt about our ability to continue as a going concern.


During the nine months ended September 30, 2013 and the year ended December 31, 2012, we have been unable to generate cash flows sufficient to support our operations and have been dependent on debt and equity raised from qualified individual investors and loans from a related party.


During the nine months ended September 30, 2013 and 2012, we experienced negative financial results as follows:



 

 

Nine Months Ended

September 30,

 

 

 

2013

 

 

2012

 

Net loss

 

$

(405,446

)

 

$

(390,157

)

Negative cash flow from operations

 

 

(49,408

)

 

 

(35,803

)

Negative working capital

 

 

(2,631,393

)

 

 

(2,087,707

)

Stockholders’ deficit

 

 

(2,631,393

)

 

 

(2,087,707

)


These factors raise substantial doubt about our ability to continue as a going concern. The financial statements contained herein do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence. Our ability to continue as a going concern is dependent upon our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations. However, there is no assurance that profitable operations or sufficient cash flows will occur in the future.




I-2



 


RESULTS OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2013 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2012


 

 

Three Months Ended

September 30,

 

 

Increase (Decrease)

 

 

 

2013

 

 

2012

 

 

2011

 

 

2013 from 2012

 

 

2012 from 2011

 

Service revenue

 

$

24,473

 

 

$

36,096

 

 

$

54,049

 

 

$

(11,623

)

 

$

(17,953

)

Cost of services

 

 

24,610

 

 

 

27,123

 

 

 

35,006

 

 

 

(2,513

)

 

 

(7,883

)

Gross profit

 

 

(137

)

 

 

8,973

 

 

 

19,043

 

 

 

(9,110

)

 

 

(10,070

)

Selling, general and administrative expenses

 

 

53,730

 

 

 

59,487

 

 

 

81,378

 

 

 

(5,757

)

 

 

(21,891

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(53,867

)

 

 

(50,514

)

 

 

(62,335

)

 

 

3,353

 

 

 

(11,821

)

Interest expense

 

 

(78,714

)

 

 

(76,336

)

 

 

(76,504

)

 

 

2,378

 

 

 

(168

)

Gain on derivative financial instruments

 

 

-

 

 

 

-

 

 

 

34,000

 

 

 

-

 

 

 

(34,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(132,581

)

 

$

(126,850

)

 

$

(104,839

)

 

$

5,731

 

 

$

22,011

 


Service Revenue.

The decrease in Service Revenue of $17,953 from 2011 to 2012 and $11,623 from 2012 to 2013 is due to a reduction in our networking service (carrier/circuit) business that provides internet connectivity to corporate clients on a subscription basis.


Cost of Services.

The net decrease in Cost of Services of $7,883 from 2011 to 2012 and $2,513 from 2012 to 2013 is due to a reduction in our networking service (carrier/circuit) business that provides internet connectivity to corporate clients on a subscription basis.


Gross Profit.

Our Gross Profit decreased $10,070 from 2011 to 2012 and $9,110 from 2012 to 2013. Our Gross Profit as a percentage of Service Revenue decreased from 35% in 2011 to 25% in 2012 to 0% in 2013 primarily as a result of the changes in the Service Revenue and Cost of Services as described above.


Selling, General and Administrative Expenses (SG&A).

The $21,891 decrease in SG&A from 2011 to 2012 is primarily a result of a $16,000 reduction of Texas franchise taxes. The $5,757 decrease from 2012 to 2013 is primarily a result of a $4,144 Texas franchise tax refund.


Interest Expense.

The decrease in Interest Expense of $168 from 2011 to 2012 is insignificant. The increase in Interest Expense of $2,378 from 2012 to 2013 was a result of the increase in borrowings under the secured note payable to related party.


Gain on Derivative Financial Instruments.

In June 2008, the FASB finalized ASC 815-15, "Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock". The pronouncement lays out a procedure to determine if an equity-linked financial instrument (or embedded feature) is indexed to its own common stock. The pronouncement is effective for fiscal years beginning after December 15, 2008. Some of Bluegate’s outstanding warrants that were previously classified in equity were reclassified to derivative liabilities on January 1, 2009 as a result of this pronouncement. Bluegate estimated the fair value of these liabilities as of January 1, 2009 to be $84,000. The fair values of these liabilities were -0- at September 30, 2013 and 2012. The $34,000 change in fair value for the three months is reported in our statement of operations as a gain on derivative financial instruments as of September 30, 2011.


Net Loss.

The Net Loss increased $22,011 from 2011 to 2012 and $5,731 from 2012 to 2013 due to the items described above.




I-3



 


FINANCIAL CONDITION


 

 

Three Months Ended

September 30,

 

 

Increase (Decrease)

 

 

 

2013

 

 

2012

 

 

2011

 

 

2013 from 2012

 

 

2012 from 2011

 

Net cash provided by (used in) operating activities

 

$

(10,592

)

 

$

(8,252

)

 

$

1,391

 

 

$

2,340

 

 

$

9,643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

10,000

 

 

 

10,000

 

 

 

-

 

 

 

-

 

 

 

(10,000

)

Net increase (decrease) in cash

 

$

(592

)

 

$

1,748

 

 

$

1,391

 

 

$

(2,340

)

 

$

357

 

Cash balance at end of period

 

$

954

 

 

$

5,134

 

 

$

9,100

 

 

 

 

 

 

 

 

 


Operating Activities.

The increase of $9,643 from 2011 to 2012 in cash used in operations is primarily due to the payment of $5,800 for the Texas franchise tax. The increase of $2,340 from 2012 to 2013 is insignificant.


Financing Activities.

The increase of $10,000 from 2011 to 2012 in cash provided by financing activities is due to the increase in proceeds from related party short term debt.


RESULTS OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2013 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2012


 

 

Nine Months Ended

September 30,

 

 

Increase (Decrease)

 

 

 

2013

 

 

2012

 

 

2011

 

 

2013 from 2012

 

 

2012 from 2011

 

Service revenue

 

$

80,634

 

 

$

112,471

 

 

$

176,213

 

 

$

(31,837

)

 

$

(63,742

)

Cost of services

 

 

76,965

 

 

 

92,414

 

 

 

111,853

 

 

 

(15,449

)

 

 

(19,439

)

Gross profit

 

 

3,669

 

 

 

20,057

 

 

 

64,360

 

 

 

(16,388

)

 

 

(44,303

)

Selling, general and administrative expenses

 

 

176,526

 

 

 

183,165

 

 

 

216,322

 

 

 

(6,639

)

 

 

(33,157

)

Loss from operations

 

 

(172,857

)

 

 

(163,108

)

 

 

(151,962

)

 

 

9,749

 

 

 

11,146

 

Interest expense

 

 

(232,589

)

 

 

(227,049

)

 

 

(217,281

)

 

 

5,540

 

 

 

9,768

 

Gain on derivative financial instruments

 

 

-

 

 

 

-

 

 

 

18,000

 

 

 

-

 

 

 

(18,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(405,446

)

 

$

(390,157

)

 

$

(351,243

)

 

$

15,289

 

 

$

38,914

 


Service Revenue.

The decrease in Service Revenue of $63,742 from 2011 to 2012 and $31,837 from 2012 to 2013 is due to a reduction in our networking service (carrier/circuit) business that provides internet connectivity to corporate clients on a subscription basis.


Cost of Services.

The net decrease in Cost of Services of $19,439 from 2011 to 2012 and $15,449 from 2012 to 2013 is due to a reduction in our networking service (carrier/circuit) business that provides internet connectivity to corporate clients on a subscription basis.




I-4



 


Gross Profit.

Our Gross Profit decreased $44,303 from 2011 to 2012 and $16,388 from 2012 to 2013. Our Gross Profit as a percentage of Service Revenue decreased from 37% in 2011 to 18% in 2012 to 5% in 2013 primarily as a result of the changes in the Service Revenue and Cost of Services as described above.


Selling, General and Administrative Expenses (SG&A).

The $33,157 decrease in SG&A from 2011 to 2012 is primarily a result of (1) a $16,037 reduction in the Director and Officer Liability insurance premium, and (2) a $16,000 reduction of Texas franchise taxes. The $6,639 decrease from 2012 to 2013 is primarily a result of a $4,144 Texas franchise tax refund.


Interest Expense.

The increase in Interest Expense of $9,768 from 2011 to 2012 was a result of one additional $10,000 late charge penalty in 2012. The increase in Interest Expense of $5,540 from 2012 to 2013 was a result of the increase in borrowings under the secured note payable to related party.


Gain on Derivative Financial Instruments.

In June 2008, the FASB finalized ASC 815-15, "Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock". The pronouncement lays out a procedure to determine if an equity-linked financial instrument (or embedded feature) is indexed to its own common stock. The pronouncement is effective for fiscal years beginning after December 15, 2008. Some of Bluegate’s outstanding warrants that were previously classified in equity were reclassified to derivative liabilities on January 1, 2009 as a result of this pronouncement. Bluegate estimated the fair value of these liabilities as of January 1, 2009 to be $84,000. The fair values of these liabilities were -0- at September 30, 2013 and 2012. The $18,000 change in fair value for the nine months is reported in our statement of operations as a gain on derivative financial instruments as of September 30, 2011.


Net Loss.

The Net Loss increased $38,914 from 2011 to 2012 and $15,289 from 2012 to 2013 due to the items described above.


FINANCIAL CONDITION


 

 

Nine Months Ended

September 30,

 

 

Increase (Decrease)

 

 

 

2013

 

 

2012

 

 

2011

 

 

2013 from 2012

 

 

2012 from 2011

 

Net cash used in operating activities

 

$

(49,408

)

 

$

(35,803

)

 

$

(31,113

)

 

$

13,605

 

 

$

4,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

46,600

 

 

 

35,000

 

 

 

30,000

 

 

 

11,600

 

 

 

5,000

 

Net decrease in cash

 

$

(2,808

)

 

$

(803

)

 

$

(1,113

)

 

$

2,005

 

 

$

(310

)

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Cash balance at end of period

 

$

954

 

 

$

5,134

 

 

$

9,100

 

 

 

 

 

 

 

 

 


Operating Activities.

The increase of $4,690 from 2011 to 2012 and $13,605 from 2012 to 2013 in cash used in operations is primarily due to the decreases in service revenue due to a reduction in our networking service (carrier/circuit) business while certain fixed costs remained relatively constant.


Financing Activities.

The increase of $5,000 from 2011 to 2012 and the increase of $11,600 from 2012 to 2013 in cash provided by financing activities are due to the increase in proceeds from related party short term debt.


BLUEGATE STRATEGY

Our strategy is to stabilize our internet connectivity business and pursue expansion of our market outside of the Healthcare industry.



I-5



 


LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2013, our cash and cash equivalents were $954; total current assets were $13,587, total current liabilities were $2,644,980 and total stockholders’ deficit was $2,631,393.


We intend to use debt to cover the anticipated negative cash flows until we can operate at a break-even cash flow mode. We may seek additional capital to fund potential costs associated with possible expansion and/or acquisitions. We believe that future funding may be obtained from public or private offerings of equity securities, debt or convertible debt securities, or other sources. Stockholders should assume that any additional funding will likely be dilutive.


Our ability to achieve profitability will depend upon our ability to execute and deliver high quality, reliable connectivity services. Our growth is dependent on attaining profit from our operations and our raising additional capital either through the sale of stock or borrowing. There is no assurance that we will be able to raise any equity financing or sell any of our products at a profit.


ITEM 4.

CONTROLS AND PROCEDURES


Evaluation of disclosure controls and procedures.


The Company’s Chief Executive Officer and Principal Accounting Officer participated in an evaluation by management of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2013. Based on their participation in that evaluation, the Company’s Chief Executive Officer and Principal Accounting Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2013 to ensure that required information is disclosed on a timely basis in its reports filed or furnished under the Exchange Act.


Changes in internal control over financial reporting.


There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.











I-6



 


PART II. OTHER INFORMATION



ITEM 1.

LEGAL PROCEEDINGS


NONE.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


NONE.


ITEM 5.

OTHER INFORMATION


NONE


ITEM 6.

EXHIBITS


Exhibit

 

 

Number

 

Name

 

 

 

31.1

 

CERTIFICATION REQUIRED BY RULE 13a - 14(a) OR RULE 15d - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF THE CHIEF EXECUTIVE OFFICER

31.2

 

CERTIFICATION REQUIRED BY RULE 13a - 14(a) OR RULE 15d - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF THE CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER

32.1

 

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350), OF THE CHIEF EXECUTIVE OFFICER

32.2

 

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350), OF THE CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER










II-1



 


SIGNATURES


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.


 

 

Bluegate Corporation

 

 

 

 

 

 

Date:  October 8, 2013

 

By:

/s/ Stephen J. Sperco

 

 

 

 

Stephen J. Sperco,

 

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

Bluegate Corporation

 

 

 

 

 

 

Date:  October 8, 2013

 

By:

/s/ Charles E. Leibold

 

 

 

 

Charles E. Leibold,

 

 

 

 

Chief Financial Officer and
Principal Accounting Officer

 

 

 

 

 

 









II-2