UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________________ to ______________
Commission File Number: 333-181444
BlueFire Equipment Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 26-2833179 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 1306 FM 1092, Suite 205 | ||
| Missouri City, TX | 77459 | |
(Address of principal executive offices) | (Zip Code) |
| 1113 Vine Street, Suite 148 |
| Houston, TX 77002 |
| (Former address of principal executive offices) |
Registrant's telephone number, including area code: (866) 713-3700
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 filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
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 | 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 o No þ
As of October 15, 2013 there were 33,947,368 shares of the registrant’s common stock issued and outstanding.
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IMPORTANT INFORMATION REGARDING THIS FORM 10-Q
Unless otherwise indicated, references to “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to BlueFire Equipment Corporation.
Readers should consider the following information as they review this Quarterly Report:
Forward-Looking Statements
The statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements”. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include any statement that may project, indicate or imply future results, events, performance or achievements. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expect,” “may,” “will,” “should,” “intend,” “plan,” “could,” “estimate” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.
Given the risks and uncertainties relating to forward-looking statements, investors should not place undue reliance on such statements. Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q and are not guarantees of future performance. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such expectations may prove to have been incorrect. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
Except to the extent required by applicable securities laws, we expressly disclaim any obligation or undertakings to release publicly any updates or revisions to any statement or information contained in this Quarterly Report on Form 10-Q, including the forward-looking statements discussed above, to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement or information is based.
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BLUEFIRE EQUIPMENT CORPORATION
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | 4 |
| Item 1 – Financial Statements | 4 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 13 |
| Item 3. Quantitative and Qualitative Disclosure about Market Risk | 16 |
| Item 4. Controls and Procedures. | 16 |
| PART II — OTHER INFORMATION | 17 |
| Item 1. Legal Proceedings. | 17 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 17 |
| Item 3. Defaults Upon Senior Securities | 17 |
| Item 4. Mine Safety Disclosures | 17 |
| Item 5. Other Information. | 17 |
| Item 6. Exhibits. | 17 |
| SIGNATURES | 18 |
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PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
BALANCE SHEETS
| September 30, 2013 | December 31, 2012 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Cash and equivalents | $ | 50,603 | $ | 44,304 | ||||
| Accounts receivable | 10,825 | 30,267 | ||||||
| Inventory | 16,058 | 33,503 | ||||||
| Total current assets | 77,486 | 108,074 | ||||||
| Furniture and equipment, net | 1,389 | - | ||||||
| Intellectual property, net | 40,229 | 38,006 | ||||||
| Total non-current assets | 41,618 | 38,006 | ||||||
| TOTAL ASSETS | $ | 119,104 | $ | 146,080 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Accounts payable and accrued expenses | $ | 82,100 | $ | 21,978 | ||||
| Notes payable, current | 250,000 | 150,000 | ||||||
| Advances | - | 50,000 | ||||||
| Total current liabilities | 332,100 | 221,978 | ||||||
| Note payable, non-current | 150,000 | - | ||||||
| Total non-current liabilities | 150,000 | - | ||||||
| TOTAL LIABILITIES | 482,100 | 221,978 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Common stock, $0.0001 par value; 100 million shares authorized, 33,947,368 shares issued and outstanding at September 30, 2013 and December 31, 2012 | 3,395 | 3,395 | ||||||
| Additional paid in capital | 91,739 | 91,739 | ||||||
| Accumulated deficit | (458,130 | ) | (171,032 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (362,996 | ) | (75,898 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 119,104 | $ | 146,080 | ||||
The accompanying notes are an integral part of these financial statements.
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BLUEFIRE EQUIPMENT CORPORATION
RESULTS OF OPERATIONS
(Unaudited)
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| REVENUES | ||||||||||||||||
| Sales revenue | $ | 10,000 | $ | 46,364 | $ | 10,000 | $ | 30,267 | ||||||||
| Service revenue | - | 4,965 | - | - | ||||||||||||
| Lease revenue | 4,454 | - | - | - | ||||||||||||
| TOTAL REVENUES | 14,454 | 51,329 | 10,000 | 30,267 | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| Manufacturing | 16,751 | 37,539 | 16,751 | 29,113 | ||||||||||||
| Refurbishment | - | 3,854 | - | - | ||||||||||||
| Lease and amortization expense | 5,584 | - | - | - | ||||||||||||
| Total cost of revenues | 22,335 | 41,393 | 16,751 | 29,113 | ||||||||||||
| Gross profit (loss) | (7,881 | ) | 9,936 | (6,751 | ) | 1,154 | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | 250,728 | 99,268 | 111,720 | 38,537 | ||||||||||||
| Depreciation, depletion and amortization | 1,463 | - | 572 | - | ||||||||||||
| Total operating expenses | 252,191 | 99,268 | 112,292 | 38,537 | ||||||||||||
| Net income (loss) from operations | (260,072 | ) | (89,332 | ) | (119,043 | ) | (37,383 | ) | ||||||||
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BLUEFIRE EQUIPMENT CORPORATION
RESULTS OF OPERATIONS
(Unaudited)
(Continued)
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| OTHER INCOME/(EXPENSE) | ||||||||||||||||
| Interest expense | 27,026 | 17,197 | 11,137 | 5,725 | ||||||||||||
| Total other expense | 27,026 | 17,197 | 11,137 | 5,725 | ||||||||||||
| Net loss | (287,098 | ) | (106,529 | ) | (130,180 | ) | (43,108 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Loss before discontinued operations | (287,098 | ) | (106,529 | ) | (130,180 | ) | (43,108 | ) | ||||||||
| Loss from discontinued operations | - | (5 | ) | - | (1 | ) | ||||||||||
| Loss attributable to Bluefire Equipment | $ | (287,098 | ) | $ | (106,534 | ) | $ | (130,180 | ) | $ | (43,109 | ) | ||||
| Net loss per share - continuing operations - basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
| Net loss per share - discontinued operations | - | - | - | - | ||||||||||||
| Weighted average number of shares outstanding | 33,947,368 | 33,947,368 | 33,947,368 | 33,947,368 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
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BLUEFIRE EQUIPMENT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended September 30, | ||||||||
| 2013 | 2012 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (287,098 | ) | $ | (106,534 | ) | ||
| Net loss from discontinued operations | - | (5 | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of intangibles | 1,337 | - | ||||||
| Depreciation | 126 | |||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | 19,442 | (2,765 | ) | |||||
| Inventory | 17,445 | 11,691 | ||||||
| Accrued interest | 9,986 | 13,750 | ||||||
| Accounts payable and accrued expenses | 50,136 | 24,185 | ||||||
| Net cash used in operations | (188,626 | ) | (59,678 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Acquisitions of intellectual property | (3,560 | ) | (4,114 | ) | ||||
| Acquisitions of furniture and fixtures | (1,515 | ) | - | |||||
| Net cash used in investing activities | (5,075 | ) | (4,114 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | 250,000 | - | ||||||
| Principal payments on debt | (50,000 | ) | - | |||||
| Proceeds from the sale of common stock | - | 75,000 | ||||||
| Net cash provided by financing activities | 200,000 | 75,000 | ||||||
| Net change in cash and equivalents | 6,299 | 11,208 | ||||||
| Cash and equivalents, beginning of period | 44,304 | 112,729 | ||||||
| Cash and equivalents, end of period | $ | 50,603 | $ | 123,937 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | 17,124 | $ | 17,229 | ||||
| Cash paid for income taxes | - | - | ||||||
The accompanying notes are an integral part of these financial statements.
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BLUEFIRE EQUIPMENT CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
BlueFire Equipment Corporation (“BFC” or the “Company”) was incorporated in Delaware on June 10, 2008. The Company has designed and manufactured a proprietary drill bit for use in the exploration and production of oil and gas. The Company generates revenue from the sale and lease of its products as well as after-sale service and repair. The Company’s corporate headquarters are located in Houston, Texas. In addition to its present product line, the Company intends to develop and commercialize additional products and technologies for the oil and gas industry.
On May 31, 2013, the Board of Directors of the Company effected a 2:1 forward split of the Company’s common stock. All share and per-share presentations in this report have been retroactively restated to reflect this forward split.
Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2013 are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited combined financial statements and the footnotes thereto for the period ended December 31, 2012.
Use of Estimates
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 disclosures 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.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the FDIC.
Inventory
The Company capitalizes new drill bit inventory at manufacturing costs plus refurbishment costs. These costs are amortized using industry standards of total average runs per bit. The inventory balance is stated net of amortization expense. Amortization is provided using the straight-line method over the estimated three refurbishment runs. Amortization expense is charged to Cost of Sales.
Accounts Receivable
Accounts receivable are stated at the amount billed to customers. Accounts receivable are due and payable upon receipt. Accounts are considered past due beyond the standard payment terms. The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required.
Intangible Assets
The Company’s policy is to capitalize intellectual property related to the filing and acquisition of internally developed patents. The patent related expenses, such as legal fees and filing fees related to preparation, defense and filing of patent, are eligible for capitalization. The Company’s intangible assets are stated at cost, less accumulated amortization.
The Company reviews the recoverability of its long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment will be based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.
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Fair Value of Financial Instruments
The carrying amount reported in the balance sheets for cash and cash equivalents, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company does not utilize derivative instruments.
Income Taxes
Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Accounting for Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
The Company applies the authoritative guidance in accounting for uncertainty in income taxes recognized in the financial statements. This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.
Revenue Recognition
The Company recognizes revenue from the sale, lease, and refurbishment of drill bits. The criteria for recognition are as follows:
| · | Revenue from sale – recorded at cost when the drill bits have been shipped. The Company had made an agreement with the purchaser to sell bits at cost. |
| · | Revenue from lease – recorded based upon the number of feet drilled. Revenue is recorded only after the product is used by the customer for the specific job booked. Upon completion of the job, the customer is billed based upon the agreed rates on a per footage basis. |
| · | Revenue from refurbishment – recorded when the refurbished item is shipped to the customers. |
Basic and Diluted Net Loss Per Common Share
Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the periods presented. The per share amounts include the dilutive effect of common stock equivalents in years with net income. Basic and diluted loss per share is the same due to the anti-dilutive nature of potential common stock equivalents.
Stock Based Compensation
The Company accounts for stock-based employee compensation arrangements using the fair value method in accordance with the accounting provisions relating to share-based payments (“Codification Topic 718”). The company accounts for the stock options issued to non-employees in accordance with these provisions.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.
BlueFire, LLC
On March 16, 2011 we entered into a joint venture agreement with two non-affiliates (the “JV Partners”) to form BlueFire LLC (“BFLLC”) in Oklahoma. On December 31, 2012, the members of BFLLC unanimously agreed to dissolve the joint venture to pursue other business interests. We owned 60% of BFLLC and acted as the managing member. The JV Partners owned the remaining 40% (20% each) and were responsible for the sales and marketing activities of BFLLC. The Company loaned $60,100 to BFLLC for its initial capitalization and the JV Partners funded an additional $40,000 to BFLLC during 2011.
As part of the dissolution of BFLLC, the cash then remaining in its bank accounts was distributed pro rata to the members of BFLLC, and the Company received a total of $52,600 in connection with the dissolution. BFLLC was dissolved as of December 31, 2012. Therefore, the accounts of BFLLC have been shown as discontinued operations in the financial statements.
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NOTE 2 – GOING CONCERN
The Company sustained a loss of $287,098 for the nine months ended September 30, 2013, and does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
In addition to operational expenses, as the Company executes its business plan, it is incurring expenses related to its public company reporting requirements. In order to finance these expenditures, the Company has raised capital in the form of debt, which will have to be repaid. The Company will need to raise capital in the next twelve months in order to remain in business.
Management anticipates that significant dilution will occur as the result of any future sales of the Company’s common stock and this will reduce the value of its outstanding shares. The Company cannot project the future level of dilution that will be experienced by investors as a result of its future financings, but it will significantly affect the value of its shares.
These factors raise a substantial doubt about the Company’s ability to continue as a going concern.
Management has plans to address the Company’s financial situation as follows:
In the near term, management plans to continue to focus on raising the funds necessary to fully implement the Company’s business plan. Management believes that certain shareholders will continue to advance the capital required to meet the Company’s financial obligations. There is no assurance, however, that these shareholders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raise doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that the Company’s projects and initiatives will be successful and will provide positive cash flow to the Company, which will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations and the ability of the Company to ultimately achieve adequate profitability and cash flows from operations to sustain its operations.
The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
NOTE 3 – COMMON STOCK
Common Stock
On May 31, 2013, the Board of Directors of the Company effected a 2:1 forward split of the Company’s common stock. All share and per-share presentations in this report have been retroactively restated to reflect this forward split.
On January 15, 2012 the Company granted William Blackwell options to purchase 480,000 shares of common stock in connection with his employment agreement. The options vest at the rate of 20,000 per month and expire if not exercised within three years of the grant date. The exercise price of the options is $0.50. Upon the optionee's termination of employment, the non-vested portion of the options will lapse upon the date of such termination. The Company used a Black-Scholes calculation to value the options grant and determined the value of the grant to be zero.
On May 15, 2012, the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission (“SEC”). The Form S-1 covered an offering of 15,000,000 shares of the Company’s common stock. The offering price was $0.005 per share. On July 24, 2012 the Form S-1 was declared effective by the SEC. In August and September 2012, the Company completed the offering, which was fully-subscribed and raised gross proceeds of $75,000. 400,000 shares of the offering were purchased by a related party. The Company used the proceeds from the offering for general working capital and administrative expenses.
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NOTE 4 - NOTES PAYABLE
On April 1, 2011, BFC signed a promissory note with our then Chief Executive Officer and Director in the amount of $100,000. The note bears interest at a rate of 15%, was originally due and payable on April 1, 2012 and had no collateral. On March 31, 2012, the Company and Holder executed an amendment to the note extending the due date to April 1, 2013, removing from the note language allowing the conversion of the note into the Company’s common stock and amending the note to include a security interest over substantially all of our assets. On April 1, 2013, the Company and Holder again executed an amendment to the note extending the due date to October 1, 2013. On October 1, 2013, the Company and the Holder again executed an amendment to the note extending the due date until January 1, 2014.
On July 1, 2011 the father of our then Chief Executive Officer loaned us $25,000. The note is due 30 days from the date of demand for repayment is made to the Company and bears interest at the rate of 15% per annum provided that interest accrues at the rate of 18% per annum upon an event of default. On April 26, 2012, we amended the note to include a security interest over substantially all of our assets. No demand for repayment has been made to date.
On August 11, 2011, the brother of our then Chief Executive Officer loaned us $25,000. The note is due 30 days from the date of demand for repayment is made to the Company and bears interest at the rate of 15% per annum provided that interest accrues at the rate of 18% per annum upon an event of default. On April 26, 2012, we amended the note to include a security interest over substantially all of our assets. No demand for repayment has been made to date.
On March 28, 2013, we signed a promissory note for cash, which we received on April 10, 2013, in the amount of $150,000. The note bears interest at 12%, with overdue amounts bearing interest at the rate of 25% or the highest amount allowable by applicable law, whichever is higher. Principal and interest is due March 28, 2015. As of September 30, 2013, we have accrued $9,000 in interest. The principal amount of this note is included in non-current liabilities.
On April 18, 2013, we repaid an advance of $50,000 which we had received on December 28, 2012.
As of September 30, 2013, the outstanding total principal and accrued interest payable was $411,861, of which $11,861 is accrued interest. For the nine months ended September 30, 2013, we paid $17,124 in interest.
On July 1, 2013, the Company entered into a Master Credit Agreement (the “Credit Agreement”) with Levantera SA (“Lender”), a company formed under the laws of the Republic of the Marshall Islands, to provide us a lending facility of up to $1 million. The Company has the right to periodically prepare a Borrowing Certificate (a “Certificate”) drawing upon this facility. At the end of each fiscal quarter, the Lender may prepare an Evidence of Indebtedness, setting forth advances, payments and interest accruals made during that quarter. Each Certificate and the interest accrued thereon is due one year after the date of the Evidence of Indebtedness.
Interest accrued on un-matured amounts is 12% per year. Matured, unpaid amounts accrue interest at 18% per year.
The instrument is not considered a revolving note and therefore monies borrowed under this instrument cannot be repaid and re-borrowed. Under the terms of this arrangement, the Company is precluded from borrowing amounts from other parties in excess of $1.5 million and may not have trade accounts payable in the ordinary course of business greater than $1 million.
As of the date of this report, the Company has submitted three Borrowing Certificates for an aggregate of $150,000 and has received $100,000 of the proceeds thereon. We have accrued $986 in interest as of September 30, 2013 on this facility.
Grupo Sierra Alta
On February 20, 2013, we entered into an agreement with Grupo Sierra Alta, S.A.S. (“GSA”), a Colombian company to create a Colombian corporation (“BFCC”) to market our products in Columbia. Under the terms of the agreement, we are to own 51% of the outstanding stock of BFCC. Additionally, we will loan BFCC $50,000 for working capital. BFCC will purchase our PDC drill bits at our cost and pay all shipping fees, logistics costs, nationalization charges, customs duties, insurance taxes and tariffs and all other costs associated with transportation of our drill bits from Houston, Texas to customers in Columbia. As of September 30, 2013, we had not funded this loan and GSA had not begun operations.
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NOTE 5 – INCOME TAXES
As of September 30, 2013, there is no provision for income taxes, current or deferred.
| 09/30/13 | 12/31/12 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry-forwards | $ | 172,821 | $ | 60,852 | ||||
| Valuation allowance | (172,821 | ) | (60,852 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
During the nine months ended September 30, 2013, the Company had a net operating loss of $287,098. As of September 30, 2013, the Company had net operating loss carry forwards in the amount of $443,100 available to offset future taxable income through 2032. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
NOTE 6 – SUBSEQUENT EVENTS
On October 3, 2013, we received a payment of $92,302 from a company in Hong Kong as an advance payment against a purchase order for the sale of 8 bits. The total sales price is expected to be approximately $170,600.
On October 1, 2013, the Company and the holder of the $100,000 promissory note (see paragraph 1 of Note 4) extended the maturity date until January 1, 2014.
We have evaluated subsequent events through the date of issuance of the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This document contains "forward-looking statements". Forward-looking statements may be identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "will" or words of similar meaning and include, but are not limited to, statements about the expected future business and financial performance of the Company. Forward-looking statements are based on management's current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions due to changes in global political, economic, business, competitive, market, regulatory and other factors. We undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future developments or otherwise.
The following discussion and analysis should be read in connection with the Company’s financial statements and related notes thereto as of December 31, 2012, filed with the Securities and Exchange Commission on Form 10-K on March 26, 2013 (the “Form 10-K”).
Overview
BlueFire Equipment Corporation (the “Company”, “BFC”, “we” or “us”) was incorporated in the state of Delaware on June 10, 2008, with a fiscal year end of December 31. We are focused on developing proprietary technologies for use in the exploration and production of oil and gas. We have developed and tested our proprietary Polycrystalline Diamond Cutter (“PDC”) drill bit and completed more than 20 drilling runs for customers in Oklahoma and West Texas.
Our Business
Our current products include PDC drill bits that are 7-7/8 and 8-3/4 inches in diameter. In addition, we intend to offer multiple lines of products to both contract drilling companies and oil and gas companies in the future, funding permitting. We expect our business plan to require at least three years of development before we have fully diversified product lines. Until that time, and as we are developing business segments, we will have concentrations in certain areas. For instance, as of the date of this filing, 100% of our operations reside in the lease and sale of PDC drill bits. Provided that our business obtains additional financing, we intend to diversify our product mix to add other equipment that can be used in the drilling and completion of oil and gas wells.
The oil and gas industry is highly competitive and always changing. As the worldwide demand for energy continues to increase there is ample potential for growth; however, there are a growing number of competitors offering similar products to those that we offer. A more established competitor could drive down the profit margin sufficiently and make it extremely difficult for us to be profitable.
We will endeavor to identify and fund the most economically viable projects that have the potential to provide the highest returns to our stakeholders for a given level of risk. We estimate that we need to raise approximately $675,000 to implement our business plan over the next 24 months as discussed in greater detail in the Form 10-K. Our present capitalization is insufficient to fully implement our sales and marketing efforts and we will need to raise capital in the next twelve months in order to remain in business.
We intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officer and Director in order to finance our businesses activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered. See also Note 2 to the financial statements included herein.
Nine Months Ended September 30, 2013 versus 2012
During the nine months ended September 30, 2012, we had lease revenue in the amount of $4,454 whose amortization cost was $5,584, for a gross loss of $1,130, versus $51,329 of sales and service revenue with cost of revenue of $41,393, for a gross profit of $9,936 for the same period in 2012. We are negotiating with several large oil and gas producers to provide drilling bits and services. We expect sales throughout the remainder of 2013 to be more favorable.
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We incurred $250,728 of general and administrative expenses for the nine months ended September 30, 2013 versus $99,268 for the same period in 2012. The increase is principally due to increases in marketing expenses, professional fees and contractor costs.
Depreciation and amortization increased from $0 for the nine months ended September 30, 2012 to $1,463 for the same period in 2013. The increase is due to the fact that, in 2012, the patents had not been granted provisional status. Additionally, we have a small amount of office equipment depreciated in the current period.
Interest expense went from $17,197 for the nine months ended September 30, 2012, to $27,026 for the same period in 2013. The increase is due to higher debt levels.
We incurred a net loss of $287,098 for the nine months ended September 30, 2013, compared to a net loss of $106,534 for the same period in 2012. The increase in net loss is primarily due to the increase in general and administrative expenses and the increase in interest expense.
Three months ended September 30, 2013 versus 2012
During the three months ended September 30, 2013, we had the sale of one drill bit which we sold at a $6,751 loss to attempt to win over a customer in West Texas. Revenues on the sale was $10,000; the cost of the sale was $16,751.
We incurred $111,720 of general and administrative expenses for the three months ended September 30, 2013 versus $38,537 for the same period in 2012. The increase from 2012 to 2013 is due principally from increases in statutory compliance and contractor costs.
Depreciation and amortization increased from $0 for the three months ended September 30, 2012 to $572 for the same period in 2013. The increase is due to the fact that, in 2012, the patents had not been granted provisional status. Additionally, we have a small amount of office equipment depreciated in the current period.
Interest expense went from $5,725 for the three months ended September 30, 2012, to $11,137 for the same period in 2013. The increase is due to higher debt levels.
We incurred a net loss of $130,180 for the three months ended September 30, 2013, compared to a net loss of $43,109 for the same period in 2012. The increase in net loss is primarily due to the increase in general and administrative expenses and the increase in interest expense.
Liquidity and Capital Resources
We had total assets of $119,104 as of September 30, 2013, which included $77,486 of current assets: $50,603 of cash and cash equivalents, $10,825 in accounts receivable and $16,058 of inventory. Our long-term assets, consisting of the carrying value of our patents, patents pending and office equipment less accumulated depreciation and amortization, was $41,618.
We had total liabilities of $482,100 at September 30, 2013, of which $332,100 were current liabilities and $150,000 were non-current liabilities. The current portion includes $82,100 of accounts payable and accrued liabilities and $250,000 of current notes payable (described in Note 4). The non-current note payable is also described in Note 4.
As of September 30, 2013, we had a working capital deficit of $254,614 and a total accumulated deficit of $458,130.
Cash flows from Operating Activities
For the nine months ended September 30, 2013, the Company used cash of $188,626 in operating activities as compared to using cash from operating activities of $59,678 for the same period in 2012. The use of cash for operating activities is predominantly attributed to the Company's net loss for the period.
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Cash flows used in Investing Activities
For the nine months ended September 30, 2013, the Company used cash of $5,075 in investing activities versus $4,114 used in investing activities during the same period in 2012. The Company used cash in responding to office actions from the United States Patent and Trademark Office and purchased certain office equipment.
Cash flows from Financing Activities
For the nine months ended September 30, 2013, we received $250,000 in proceeds from a promissory note and paid outstanding advances of $50,000 for net cash flows from financing activities of $200,000 versus $75,000 for the same period in 2012, resulting from sales of common stock.
Capital Requirements
In August and September 2012, we raised $75,000 through the sale of 15,000,000 shares of our common stock at a price of $0.005 per share pursuant to our Form S-1 Registration Statement. We anticipate requiring and additional capital infusion of approximately $675,000, when taking into account the $75,000 previously raised, in order to effectively execute our business plan over the next twenty-four months, which does not include amounts owed on the promissory notes, described below. Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status we believe that we may be able to issue debt and equity in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.
The current funds available to us will be sufficient to continue maintaining a reporting status and limited operations for 24 months. However, in order to be successful in fully implementing our business plan, and repay the notes, described below, we will require additional capital.
On April 1, 2011, we signed a promissory note with our then Chief Executive Officer and Director in the amount of $100,000. The note bears interest at a rate of 15%, was originally due and payable on April 1, 2012 and had no collateral. On March 31, 2012, the Company and the holder executed an amendment to the note extending the due date to April 1, 2013, removing from the note language allowing the conversion of the note into the Company’s common stock and amending the note to include a security interest over substantially all of our assets. On April 1, 2013, the Company and Holder again executed an amendment to the note extending the due date to October 1, 2013. On October 1, 2013, the Company and the Holder again executed an amendment to the note extending the due date until January 1, 2014.
On July 1, 2011, a private investor loaned us $25,000. The note is due 30 days from the date demand for repayment is made to the Company and bears interest at the rate of 15% per annum provided that interest accrues at the rate of 18% per annum upon an event of default. On April 26, 2012, we amended the note to include a security interest over substantially all of our assets. No demand for repayment has been made to date.
On August 11, 2011, a private investor loaned us $25,000. The note is due 30 days from the date demand for repayment is made to the Company and bears interest at the rate of 15% per annum provided that interest accrues at the rate of 18% per annum upon an event of default. On April 26, 2012, we amended the note to include a security interest over substantially all of our assets. No demand for repayment has been made to date.
On March 28, 2013, we entered into a $150,000 promissory note with an investor. The note accrues interest at 12%, with interest at 25% (or the greatest amount allowable by law) for any matured but unpaid principal. The note matures on March 28, 2015.
On April 18, 2013, $50,000, which was advanced to the Company on December 28, 2012, was repaid.
On July 1, 2013, we entered into a Master Credit Agreement (the “Credit Agreement”) with Levantera SA (“Lender”), a company formed under the laws of the Republic of the Marshall Islands, to provide us a lending facility of up to $1 million. The Company has the right to periodically prepare a Borrowing Certificate (a “Certificate”) drawing upon this facility. At the end of each fiscal quarter, the Lender may prepare an Evidence of Indebtedness, setting forth advances, payments and interest accruals made during that quarter. Each Certificate and the interest accrued thereon is due one year after the date of the Evidence of Indebtedness. Interest accrued on un-matured amounts is 12% per year. Matured, unpaid amounts accrue interest at 18% per year.
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As of the date of this report, the Company has submitted three Borrowing Certificates for an aggregate of $150,000 and has received $100,000 of the proceeds thereon.
Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.
The Company’s management, with the participation of the Company’s Chief Executive Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer has concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act) during the fiscal quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.
Item 1A. Risk Factors.
Our business involves a high degree of risk. There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Commission on March 26, 2013, and investors are encouraged to review such risk factors prior to making an investment in the Company.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information.
None.
Item 6. Exhibits.
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BlueFire Equipment Corporation | ||
| By: | /s/ William Blackwell | |
| William Blackwell | ||
| Chairman of the Board and CEO | ||
| (Principal Executive Officer and | ||
| Principal Accounting Officer) |
Date: October 15, 2013
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| Exhibit No. | Description |
| 10.1* | Extension to Promissory Note With Tyson Rohde (April 1, 2013) |
| 10.2* | $150,000 Promissory Note (April 10, 2013) |
| 31.1* | Section 302 Certification of Periodic Report of Principal Executive Officer and Principal Financial Officer* |
| 32.1* | Section 906 Certification of Periodic Report of Principal Executive Officer and Principal Financial Officer* |
| 101.INS* | XBRL Instance Document |
| 101.SCH* | XBRL Schema Document |
| 101.CAL* | XBRL Calculation Linkbase Document |
| 101.DEF* | XBRL Definition Linkbase Document |
| 101.LAB* | XBRL Label Linkbase Document |
| 101.PRE* | XBRL Presentation Linkbase Document |
*Filed herewith.
1 XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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