Coyni, Inc. - Quarter Report: 2009 June (Form 10-Q)

bgat10q063009.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2009
[ ]	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 600, 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 [X] 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 [ ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions 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	[X]

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

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: 26,033,565 common shares outstanding as of July 15, 2009.

Table of Contents

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Unaudited Consolidated Financial Statements	F-1

Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008	F-1

Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008	F-2

Consolidated Statement of Stockholders’ Deficit for the six months ended June 30, 2009	F-3

Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008	F-4

Notes to Consolidated Financial Statements	F-5

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	I-1

ITEM 4T. CONTROLS AND PROCEDURES	I-8

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	II-1

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	II-1

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	II-1

ITEM 6. EXHIBITS	II-1

SIGNATURES	II-2

CERTIFICATIONS	II-3

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ITEM 1. FINANCIAL STATEMENTS

BLUEGATE CORPORATION
CONSOLIDATED BALANCE SHEETS
UNAUDITED


	June 30,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	34,014		$	11,283
Accounts receivable, net		361,707			502,631
Prepaid expenses and other		15,896			22,498
Total current assets		411,617			536,412
Property and equipment, net		27,653			44,381
Total assets	$	439,270		$	580,793
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	135,655		$	230,325
Accounts payable to related party		3,000			10,750
Accrued liabilities		60,398			139,046
Notes payable		12,800			12,800
Notes payable to related parties		1,369,079			1,169,079
Accrued liabilities to related parties		124,282			178,655
Deferred revenue		123,423			194,472
Derivative liabilities		88,000			-
Total current liabilities		1,916,637			1,935,127
Stockholders’ deficit:
Undesignated preferred stock, $.001 par value, 9,999,952 shares authorized, none issued and outstanding		-			-
Series C Convertible Non-Redeemable preferred stock, $.001 par value, 48 shares authorized, issued and outstanding at June 30, 2009 and December 31, 2008; $12,500 per share liquidation preference ($600,000 aggregate liquidation preference at June 30, 2009)		-			-
Common stock, $.001 par value, 50,000,000 shares authorized, 26,033,565 shares issued and outstanding at June 30, 2009 and December 31, 2008		26,034			26,034
Additional paid-in capital		21,642,854			26,240,785
Accumulated deficit		(23,146,255	)		(27,621,153	)
Total stockholders’ deficit		(1,477,367	)		(1,354,334	)
Total liabilities and stockholders’ deficit	$	439,270		$	580,793

See accompanying notes to consolidated financial statements

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BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended June 30,						Six Months Ended June 30,
		2009			2008			2009			2008
Service revenue	$	952,187		$	1,022,405		$	1,966,142		$	2,064,932
Cost of services		580,646			845,281			1,201,460			1,603,025
Gross profit		371,541			177,124			764,682			461,907
Selling, general and administrative expenses		104,269			174,328			228,207			412,420
Compensation expense		201,430			308,364			453,606			1,414,555
Income (loss) from operations		65,842			(305,568	)		82,869			(1,365,068	)
Interest expense		(52,321	)		(32,108	)		(119,971	)		(59,428	)
Gain (loss) on derivative financial instruments		87,000			-			(4,000	)		-
Net income (loss)	$	100,521		$	(337,676	)	$	(41,102	)	$	(1,424,496	)
Net income (loss) per common share - basic and diluted	$	0.00		$	(0.01	)	$	0.00		$	(0.06	)

Basic and diluted weighted average shares outstanding		26,033,565			24,783,565			26,033,565			23,153,400

See accompanying notes to consolidated financial statements

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BLUEGATE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 2009
UNAUDITED
									ADDITIONAL
	COMMON STOCK				PREFERRED STOCK				PAID-IN			ACCUMULATED
	SHARES		CAPITAL		SHARES		CAPITAL		CAPITAL			DEFICIT			TOTAL

Balance at December 31, 2008		26,033,565	$	26,034		48	$	-	$	26,240,785		$	(27,621,153	)	$	(1,354,334	)
Cumulative effect of change in accounting principle - January 1, 2009 reclassification of embedded feature of equity-linked financial instruments to derivative liabilities										(4,600,000	)		4,516,000			(84,000	)
Common stock options issued for employee services										2,069						2,069
Net loss													(41,102	)		(41,102	)
Balance at June 30, 2009		26,033,565	$	26,034		48	$	-	$	21,642,854		$	(23,146,255	)	$	(1,477,367	)

See accompanying notes to consolidated financial statements

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BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2009 AND 2008
UNAUDITED
	2009			2008
Cash flows from operating activities:
Net loss	$	(41,102	)	$	(1,424,496	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		16,728			29,214
Common stock options issued for employee services		2,069			255,344
Common stock warrants issued to borrow funds from related party		-			109,028
Common stock issued for compensation		-			535,500
Derivative loss		4,000			-
Amortization of debt issuance cost		20,000			-
Changes in operating assets and liabilities:
Accounts receivable		140,924			184,113
Prepaid expenses and other current assets		6,602			6,873
Accounts payable and accrued liabilities		(173,318	)		(184,810	)
Accounts payable to related party		(7,750	)		63,907
Accrued liabilities to related parties		(54,373	)		114,712
Deferred revenue		(71,049	)		101,946
Net cash used in operating activities		(157,269	)		(208,669	)

Cash flows from investing activities:
Purchase of property and equipment		-			(12,870	)
Net cash used in investing activities		-			(12,870	)

Cash flows from financing activities:
Proceeds from related party short term debt		180,000			200,000
Payments on related party short term debt		-			(42,492	)
Common stock and warrants issued for cash		-			95,000
Net cash provided by financing activities		180,000			252,508

Net increase in cash and cash equivalents		22,731			30,969
Cash and cash equivalents at beginning of period		11,283			43,703
Cash and cash equivalents at end of period	$	34,014		$	74,672

Non Cash Transactions:
Issuance of common stock for conversion of related party accounts payable, accrued expenses and accrued interest	$	-		$	305,000
Derivative liability at January 1, 2009		84,000			-
Supplemental information:
Cash paid for interest		112,918			59,478

See accompanying notes to consolidated financial statements

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BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Bluegate Corporation, 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 2008 as reported in the Form 10-K have been omitted.

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.

FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS 157 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 were effective January 1, 2008. The FASB has also issued Staff Position (FSP) SFAS 157-2 (FSP No. 157-2), which delays the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008.

As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy defined by SFAS 157 are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of June 30, 2009. As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

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	June 30, 2009
	Level 1		Level 2		Level 3		Total
Embedded derivatives		—	$	88,000		—	$	88,000

The derivatives listed above are carried at fair value. The fair value amounts in current period earnings associated with the Company’s derivatives resulted from Level 2 fair value methodologies; that is, the Company is able to value the assets and liabilities based on observable market data for similar instruments. This observable data includes the quoted market prices and estimated volatility factors.

RECLASSIFICATIONS

We have reclassified certain prior-year amounts to conform to the current year’s presentation.

2. GOING CONCERN CONSIDERATIONS

During the six months ended June 30, 2009 and 2008, 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 consolidated financial statements do not include any adjustments that might be necessary if Bluegate is unable to continue as a going concern.

3.	NOTES PAYABLE

Notes payable at June 30, 2009 and December 31, 2008 are summarized below:	6/30/2009		12/31/2008

Unsecured notes payable: 10% note payable due upon demand	$	12,800	$	12,800
Notes payable to related parties:
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 Sperco, to borrow up to $500,000. On February 28, 2008, the line of credit agreement with SAIC was amended to increase the borrowing to $700,000 and on February 28, 2008, Bluegate borrowed the additional $200,000 from SAIC for working capital purposes. As condition to and as additional consideration for SAIC’s agreement to lend the 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, and increased the interest rate from 12% to 15% per annum. On July 14, 2008, the line of credit agreement with SAIC was amended to increase the borrowing to $900,000 and on July 31, 2008, Bluegate borrowed the additional $200,000 from SAIC for working capital purposes. Upon Bluegate borrowing the additional $200,000, the Company agreed to pay (1) SAIC a $40,000 origination fee and (2) Sperco Technology Group, Inc. (“STG”), a corporation controlled by our CEO, Stephen Sperco, all past due amounts totaling $104,972. On August 14, 2008, the Company entered into a short term unsecured loan with SAIC to meet its working capital needs to borrow $65,000. Upon borrowing the $65,000, the Company agreed to pay SAIC a $6,500 origination fee and to repay SAIC with the first available funds once the August 15, 2008 payroll and medical insurance premium was paid. The Company paid the $65,000 loan and $6,500 fee on August 15, 2008. On August 28, 2008, the Company borrowed $50,000 from SAIC and agreed to pay SAIC a $5,000 origination fee. The Company paid the $50,000 funds borrowed and $5,000 fee on September 11, 2008. On October 16, 2008, the line of credit agreement with SAIC was amended to increase the borrowing to $1,100,000 and on October 21, 2008, Bluegate borrowed the additional $200,000 from SAIC for working capital purposes. Upon Bluegate borrowing the additional $200,000, the Company agreed to pay (1) SAIC a $20,000 origination fee and (2) Sperco Technology Group, Inc. all past due amounts. On February 23, 2009, the line of credit agreement with SAIC was amended to increase the borrowing to $1,300,000 and on February 26, 2009, Bluegate borrowed the additional $200,000 from SAIC for working capital purposes. Upon Bluegate borrowing the additional $200,000, the Company agreed to pay SAIC a $20,000 origination fee. Note payable to SAI Corporation due on demand	$	1,300,000	$	1,100,000
Unsecured notes payable to related parties: During 2006, the Company entered into a line of credit agreement with Manfred Sternberg ("MS"), Chief Strategy Officer and William Koehler ("WK"), former President and COO, for Bluegate to borrow up to $500,000 from each of them. As of June 30, 2009, the interest rates on the underlying credit cards pertaining to funds borrowed from MS and WK were 17.24% and 17.23%, respectively.
Notes payable to William Koehler due on demand		34,628		34,628
Notes payable to Manfred Sternberg due on demand		34,451		34,451

	$	1,369,079	$	1,169,079

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4. EQUITY TRANSACTIONS

During the six months ended June 30, 2009, Bluegate completed the following equity transactions:

Stock options issued for services:

During the six months ended June 30, 2009, Bluegate expensed $300 related to previously issued stock options that vested during the period.

The following table summarizes stock options issued to the employee during the six months ended June 30, 2009:



	Exercise		Fair		Expiration	Vesting	2009
Options	Price		Value		Date	Period	Expense
50,000	$	0.10	$	1,769	3/4/2012	Immediately	$	1,769

As of June 30, 2009, the company has outstanding: (i) 26,033,565 shares of common stock; (ii) 17,437,800 warrants; (iii) 9,833,597 options; and, (iv) preferred stock that are convertible into 1,200,000 shares of common stock, resulting on a fully diluted basis, 54,504,962 shares of common stock. However, the company currently has only 50,000,000 shares of common stock authorized by our Articles of Incorporation. If all of the holders of warrants, options, convertible debt and preferred stock requested to exercise or convert all of the warrants, options, convertible debt and preferred stock, we would be unable to accommodate 4,504,962 shares of common stock in those requests. The company could have liability in the future if an option holder, warrant holder, preferred stock holder or holder of convertible debt desires to exercise or convert but cannot because we do not have enough unissued common stock available for issuance. However, the following individuals or entities have waived their reservation of common stock underlying options and warrants until such time that the board of directors deems the waiver is not necessary as follows: Stephen Sperco and related entity (3,000,000 shares); Manfred Sternberg and related entities (2,000,000 shares); and William Koehler (2,000,000 shares).

Bluegate used the Black-Scholes option pricing model to value stock options and warrants using the following assumptions: number of options as set forth in the option agreements; no expected dividend yield; expected volatility ranging from 202% to 260%; risk-free interest rates of 5.0%; and expected terms based on the period of time expected to elapse until exercise. When applicable, Bluegate uses the simplified method of calculating expected term as described in SAB 107.

5. DERIVATIVE LIABILITY

Embedded feature of equity-linked financial instrument:

In June 2008, the FASB finalized EITF 07-5, "Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity's Own Stock". The EITF lays out a procedure to determine if an equity-linked financial instrument (or embedded feature) is indexed to its own common stock. The EITF is effective for fiscal years beginning after December 15, 2008. 9,034,800 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 EITF. Bluegate estimated the fair value of these liabilities as of January 1, 2009 to be $84,000 by recording a reduction of $4,600,000 to Additional Paid In Capital and $4,516,000 to Accumulated Deficit. The effect of this adjustment is recorded as a cumulative effect of change in accounting principle in our consolidated statement of stockholders’ deficit. The fair value of these liabilities was $88,000 at June 30, 2009. The $4,000 change in fair value is reported in our consolidated statement of operations as a loss on derivative financial instruments. The fair value of these liabilities will be re-measured at the end of every reporting period and the change in fair value will be reported in our consolidated statement of operations as a gain or loss on derivative financial instruments.

Bluegate used the Black-Scholes option pricing model to value the embedded feature of the liability using the following assumptions: number of options as set forth in the option agreements; no expected dividend yield; expected volatility ranging from 220% to 330%; risk-free interest rates of 5.0%; and expected terms based on the contractual term.

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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 June 30, 2009 and for the six 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 2008.

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 provides the nation's only Medical Grade Network® that facilitates physician and clinical integration between hospitals and physicians in a secure private environment. As a leader in providing the Healthcare industry outsourced Information Technology (IT) solutions and remote IT management services, Bluegate provides hospitals and physicians with a single source solution for all of their clinical integration and IT needs. Additionally Bluegate provides IT and telecommunications consulting through its professional services organization.

CONSULTING PRACTICE

Healthcare institutions have very unique requirements not found in a typical commercial environment. Our Healthcare consulting practice works with medical facilities and systems on evaluation, procurement and implementation of healthcare related voice, data, video, infrastructure and applications for the Healthcare environment with a particular emphasis on the deployment of Electronic Medical Record applications. Our IT/Telecommunications consulting practice works in various industry verticals providing evaluation, procurement and implementation of IT/Telecommunications solutions for our clients. Our Applications consulting practice provides specific applications development, enhancement, coding, and integration work for various industry verticals.

OUTSOURCING

Our outsourcing offering includes help desk support and break-fix operations as well as acquisition and special financing of equipment and services. It also can include provisions for technology refresh, change management, and level of service agreements. Our target market for such services consists of private-practice physicians whose office staffs typically lack the in-house technical expertise to support mission-critical computer systems and associated hardware. In many cases, these private-practice physicians are affiliated with our larger medical facility clients, creating a logical foundation for Bluegate to establish and maintain long-term business relationships.

SYSTEMS INTEGRATION AND MANAGED SECURITY SOLUTIONS

Our systems integration and managed security group enables secure, HIPAA-compliant data communication between hospitals, medical facilities and physician practices from all locations via the services of our Bluegate Medical Grade Network® - ultimately enhancing patient care. We also provide affordable access to compatible medical-focused content and applications over a secure IT infrastructure to improve practice efficiency and service. We extend IT Best Practices to the edge of the healthcare network ensuring every access point for the physician and healthcare location is as secure as the hospital itself.

MARKET OPPORTUNITY IN HEALTHCARE

Electronic data communication networks have vast potential for enhancing the quality of patient care, mitigating the soaring costs of healthcare, and protecting patient privacy. To harness this potential, the current administration, Congress, and administrative agencies are advocating that all physicians get connected to the proposed national health information network (NHIN) system. A NHIN is expected to enable physicians to write electronic prescriptions (eRx) and securely share patient electronic health records (EHR), including medical images, with other healthcare providers at hospitals, clinics, and individual physician offices.

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In order to access and use the NHIN, individual physicians must have the appropriate IT environment at their offices, and the hospitals where they admit patients. Further, the hospitals’ credentialed physicians must be on a common HIPAA compliant network. Once the hospital has installed the necessary secure electronic connectivity behind their firewall, the "last mile" of connectivity, the figurative distance from the telecommunication provider's switch to an end user (i.e. the physician), still presents a major challenge. In addition to being HIPAA-compliant, the networks also need to be interoperable, which requires assessing and augmenting physicians' existing IT equipment and resources. Adequate training and technical support is necessary to ensure the highest possible network availability and security and the ability to move and manage information back and forth.

The Administrative Simplification provisions of Title II of HIPAA require the United States Department of Health and Human Services to establish national standards for electronic healthcare transactions and national identifiers for providers, health plans, and employers. It also addresses the security and privacy of health data. Adopting these standards will improve the efficiency and effectiveness of the nation's Healthcare system by encouraging the widespread use of electronic data interchange in Healthcare. As the result of increasing pressure for healthcare providers to adopt electronic health records and the favorable healthcare IT environment created by the Stark Law exceptions there is rapidly increasing demand for Bluegate’s networks, technologies, remote management, and professional IT services.

BLUEGATE STRATEGY

Healthcare

Our current short term strategies are to: (1) increase our market penetration of the Houston hospital, centralized Healthcare, and physician markets; (2) commence deployment of services in other Texas cities; and, (3) commence deployment of services in other cities in the U.S. Our long term strategy is fivefold: (1) fill as much of the national HIPAA-compliant secured communications void that exists between the physician and the hospital as we can; (2) sell our services to the physicians that utilize our Medical Grade Network®, enabling them to choose Bluegate as their electronic health solutions firm and as the IT outsource firm of choice for all of their technology needs; (3) to be "THE" IT solutions resource to medical institutions, Healthcare facilities, regional health information organizations (RHIOs), and centralized Healthcare organizations (HCOs) for all their IT needs; (4) partner with a wide array of third party providers of software, managed systems, pharmacy benefits, and many other applications that must run on electronic networks and be installed in hospitals, HCOs and medical practices; and (5) become the premier “boutique” consulting practice supporting the deployment of Electronic Medical Record systems and services.

Professional Services

In addition to the Professional Services initiatives in Healthcare, Bluegate intends to continue to grow in the following areas through its Trilliant Technology Group organization: (1) Further establish its reputation as one of the top Telecommunications consulting organizations in the U.S.; and (2) expand its IT Infrastructure consulting base.

COMPETITION

We are not aware of any completely direct competitors at this time. However, competition may include vendors of HIPAA software and Internet Protocol ("IP") networks whose security may or may not comply with the terms of the HIPAA confidentiality compliance requirements.

The IT services market is extremely competitive, highly fragmented and has grown dramatically in recent years. The market is characterized by the absence of significant barriers to entry and rapidly changing applications and technology. Other competitors may be:

-	Access and content providers, such as AOL, Microsoft, EarthLink and Time Warner;

-	Professional Service organizations, such as IBM, CSC, Perot Systems, and EDS;

-	Regional, national and international telecommunications companies, such as AT&T, Verizon, Qwest, and Sprint;

-	On-line services offered by incumbent cable providers such as Comcast and Cox;

-	DSL providers such as the RBOC’s and CLEC’s.

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

Our web site is www.bluegate.com.

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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 consolidated financial statements.

REVENUE RECOGNITION

Revenue, which includes licensing revenue, is recognized based upon contractually determined monthly service charges to individual customers. Services are billed in advance and, accordingly, revenues are deferred until the period in which the services are provided.

STOCK-BASED COMPENSATION

Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123R") 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, we implemented SFAS No. 123R, and accordingly, Bluegate accounts for compensation cost for stock option plans in accordance with SFAS No. 123R.

DERIVATIVE FINANCIAL INSTRUMENTS

GOING CONCERN

We remain dependent on outside sources of funding for continuation of our operations. Our independent registered public accounting firm included a going concern qualification in their report dated April 9, 2009 (included in our annual report on Form 10-K for the year ended December 31, 2008), which raises substantial doubt about our ability to continue as a going concern.

During the six months ended June 30, 2009 and the year ended December 31, 2008, 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 six months ended June 30, 2009 and 2008, we experienced negative financial results as follows:

	Six Months Ended June 30,
	2009			2008

Net loss	$	(41,102	)	$	(1,424,496	)
Negative cash flow from operations		(157,269	)		(208,669	)
Negative working capital		(1,505,020	)		(1,243,245	)
Stockholders' deficit		(1,477,367	)		(1,189,289	)

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.

We have supported the above operations by: (1) loans from a related party, (2) raising additional operating cash through the private sale of our preferred and common stock, (3) selling convertible debt and common stock to certain key stockholders and (4) issuing stock and options as compensation to certain employees and vendors in lieu of cash payments.

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These steps have provided us with the cash flows to continue our business plan, but have not resulted in significant improvement in our financial position. We are considering alternatives to address our cash flow situation that include: (1) raising capital through additional sale of our common stock and/or debt Securities and (2) reducing cash operating expenses to levels that are in line with current revenues.

These alternatives could result in substantial dilution of existing stockholders. There can be no assurance that our current financial position can be improved, that we can raise additional working capital or that we can achieve positive cash flows from operations. Our long-term viability as a going concern is dependent upon

the following:

- Our ability to locate sources of debt or equity funding to meet current commitments and near-term future requirements.

- Our ability to achieve profitability and ultimately generate sufficient cash flow from operations to sustain our continuing operations.

RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2009 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2008


	Three Months Ended June 30,									Increase (Decrease)
	2009			2008			2007			2009 from 2008			2008 from 2007
Service revenue	$	952,187		$	1,022,405		$	1,807,255		$	(70,218	)	$	(784,850	)
Cost of services		580,646			845,281			1,232,302			(264,635	)		(387,021	)
Gross profit		371,541			177,124			574,953			194,417			(397,829	)
Selling, general and administrative expenses		104,269			174,328			413,619			(70,059	)		(239,291	)
Compensation expense		201,430			308,364			1,240,031			(106,934	)		(931,667	)
Income (loss) from operations		65,842			(305,568	)		(1,078,697	)		(371,410	)		(773,129	)
Interest expense		(52,321	)		(32,108	)		(8,337	)		20,213			23,771
Deemed dividend on preferred stock		-			-			(600,000	)		-			600,000
Gain on derivative financial instrument		87,000			-			-			87,000			-
Net income (loss)	$	100,521		$	(337,676	)	$	(1,687,034	)	$	(438,197	)	$	(1,349,358	)

Service Revenue.

The $784,850 decrease in Service Revenue from 2007 to 2008 is primarily attributable to: (1) a reduction of $380,000 related to the completion of certain large application development engagements; (2) a reduction of $180,000 related to the fourth quarter 2007 decision by one of the healthcare systems that we contracted with to provide managed security services to their physicians, notified their physicians that effective January 1, 2008 they would no longer subsidize those costs, which resulted in the reduction of the number of physician practices we serve for that system; (3) a reduction of $330,000 related to the reduction of EMR related projects and (4) offset by an increase of $150,000 related to the implementation project management and consulting services contract awarded to us by a healthcare system in Houston, Texas. The $70,218 decrease in Service Revenue from 2008 to 2009 is primarily attributable to: (1) a reduction of $158,000 related to our Medical Grade Network® business; () a reduction of $75,000 related to product sales and (3) offset by an increase of $174,000 related to the implementation project management and consulting services.

Cost of Services.

The $387,021 decrease in Cost of Services from 2007 to 2008 is primarily attributable to $160,000 related to the completion of certain large application development engagements throughout 2007 and $165,000 due to the reduction of EMR related projects. The $264,635 decrease in Cost of Services from 2008 to 2009 is primarily attributable to: (1) a $103,000 decrease in personnel related to the completion of certain large application development engagements and other cost cutting measures; (2) a $77,000 decrease related to our Medical Grade Network® business and (3) a reduction of $63,000 related to product sales.

Gross Profit.

Our Gross Profit decreased $397,829 from 2007 to 2008 and increased $194,417 from 2008 to 2009. Our Gross Profit as a percentage of Service Revenue decreased from 32% in 2007 to 17% in 2008 and increased to 39% in 2009 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 $239,291 decrease in SG&A from 2007 to 2008 was due primarily to a decrease of $60,000 related to business consulting and investment banking fees incurred during the second quarter of 2007 compared to -0- during the second quarter of 2008 as well as the effects of additional cost control measures instituted during the first quarter of 2008. The $70,059 decrease in SG&A from 2008 to 2009 is due primarily to the effects of additional cost control measures.

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Compensation Expense.

The decrease in Compensation Expense of $931,667 from 2007 to 2008 is principally comprised of the following:

$(648,000) decrease related to options issued for employee services

(240,000) decrease related to the reduction in personnel

The decrease in Compensation Expense of $106,934 from 2008 to 2009 is principally comprised of the following:

$(109,000) decrease related to options issued for employee services

Interest Expense.

The $23,771 increase in Interest Expense from 2007 to 2008 and the increase of $20,213 from 2008 to 2009 was a result of the increase in borrowings under the secured note payable to related party.

Deemed Dividend on Preferred Stock.

There was no deemed dividend on preferred shares and common stock warrants issued for 2008 and 2009 as compared to $600,000 for 2007.

Gain on Derivative Financial Instruments.

Net Income/Loss.

The Net Loss decreased $1,349,358 from 2007 to 2008 and decreased $438,197 from 2008 to 2009 (which resulted in $100,521 of net income for the second quarter of 2009) due to the items described above.

FINANCIAL CONDITION – THREE MONTHS ENDED JUNE 30, 2009 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2008

	Three Months Ended June 30,									Increase (Decrease)
	2009			2008			2007			2009 from 2008			2008 from 2007
Net cash provided by (used in) operating activities	$	(45,434	)	$	41,279		$	(300,418	)	$	(86,713	)	$	(341,697	)
Net cash (used in) investing activities		-			(3,500	)		(11,814	)		(3,500	)		(8,314	)
Net cash provided by (used in) financing activities		-			(2,890	)		122,552			(2,890	)		(125,442	)
Net increase (decrease) in cash	$	(45,434	)	$	34,889		$	(189,680	)	$	(80,323	)	$	224,569
Cash balance at end of period	$	34,014		$	74,672		$	19,378

Operating Activities.

The net decrease of $341,697 in cash used in operations from 2007 to 2008 is primarily due to: (1) the decrease in personnel and related salaries as a result of: (i) the completion of certain large application development engagements during 2007; (ii) a decision by one of the healthcare systems that we contracted with to provide managed security services to their physicians, notified their physicians that effective January 1, 2008 they would no longer subsidize those costs, which resulted in the reduction of the number of physician practices we served for that system; (iii) the reduction of EMR related projects; (2) the elimination of business consulting and investment banking fees and (3) partially offset by an increase of personnel and salaries related to the implementation project management and consulting services. The net decrease of $86,713 in cash used in operations from 2008 to 2009 is primarily due to: (1) a decrease in personnel related to the completion of certain large application development engagements; (2) a reduction in product sales; (3) the effects of additional cost control measures and (4) partially offset by an increase of personnel and salaries related to the implementation project management and consulting services.

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Investing Activities.

The changes in the net cash used in investing activities from 2007 through 2009 are insignificant.

Financing Activities.

The decrease of $125,442 in net cash provided by financing activities from 2007 to 2008 is due to: (1) a $100,000 decrease in investments in the company’s preferred stock and common stock warrants and (2) a $25,000 net increase in related party short term debt. The decrease of $2,890 in cash used in financing activities from 2008 to 2009 is insignificant.

RESULTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2009 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2008

	Six Months Ended June 30,									Increase (Decrease)
	2009			2008			2007			2009 from 2008			2008 from 2007
Service revenue	$	1,966,142		$	2,064,932		$	3,168,322		$	(98,790	)	$	(1,103,390	)
Cost of services		1,201,460			1,603,025			2,193,130			(401,565	)		(590,105	)
Gross profit		764,682			461,907			975,192			302,775			(513,285	)
Selling, general and administrative expenses		228,207			412,420			1,263,217			(184,213	)		(850,797	)
Compensation expense		453,606			1,414,555			2,827,701			(960,949	)		(1,413,146	)
Income (loss) from operations		82,869			(1,365,068	)		(3,115,726	)		(1,447,937	)		(1,750,658	)
Interest expense		(119,971	)		(59,428	)		(47,514	)		60,543			11,914
Deemed dividend on preferred stock		-			-			(600,000	)		-			600,000
Loss on derivative financial instrument		(4,000	)		-			-			(4,000	)		-
Net loss	$	(41,102	)	$	(1,424,496	)	$	(3,763,240	)	$	(1,383,394	)	$	(2,338,744	)

Service Revenue.

The $1,103,390 decrease in Service Revenue from 2007 to 2008 is primarily attributable to: (1) a reduction of $700,000 related to the completion of certain large application development engagements; (2) a reduction of $360,000 related to the fourth quarter 2007 decision by one of the healthcare systems that we contracted with to provide managed security services to their physicians, notified their physicians that effective January 1, 2008 they would no longer subsidize those costs, which resulted in the reduction of the number of physician practices we serve for that system; (3) a reduction of $435,000 related to the reduction of EMR related projects and (4) offset by an increase of $450,000 related to the implementation project management and consulting services contract awarded to us by a healthcare system in Houston, Texas. The $98,790 decrease in Service Revenue from 2008 to 2009 is primarily attributable to: (1) a reduction of $300,000 related to our Medical Grade Network® business; () a reduction of $105,000 related to product sales and (3) offset by an increase of $339,000 related to the implementation project management and consulting services.

Cost of Services.

The $590,105 decrease in Cost of Services from 2007 to 2008 is primarily attributable to $270,000 related to the completion of certain large application development engagements throughout 2007 and $250,000 due to the reduction of EMR related projects. The $401,565 decrease in Cost of Services from 2008 to 2009 is primarily attributable to: (1) a $177,000 decrease in personnel related to the completion of certain large application development engagements and other cost cutting measures; (2) a $144,000 decrease related to our Medical Grade Network® business; (3) a reduction of $73,000 related to product sales and (4) offset by an increase of $45,000 related to technology consulting services.

Gross Profit.

Our Gross Profit decreased $513,285 from 2007 to 2008 and increased $302,775 from 2008 to 2009. Our Gross Profit as a percentage of Service Revenue decreased from 31% in 2007 to 22% in 2008 and increased to 39% in 2009 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 $850,797 decrease in SG&A from 2007 to 2008 is due primarily to a decrease of $625,000 related to business consulting and investment banking fees incurred during the six months of 2007 compared to -0- during the six months of 2008, as well as the effects of additional cost control measures instituted during the first quarter of 2008. The $184,213 decrease in SG&A from 2008 to 2009 is due primarily to the effects of additional cost control measures.

Compensation Expense.

The decrease in Compensation Expense of $1,413,146 from 2007 to 2008 is principally comprised of the following:

$	(1,512,000	)	decrease related to options issued for employee services
	(500,000	)	decrease related to the reduction in personnel
	(143,000	)	decrease related to issuance of shares for employee compensation
	519,000		increase related to conversion of related party debt for common stock
	109,000		increase related to warrants issued to borrow funds from a related party
	17,000		increase related to related party purchase of common stock for cash

The decrease in Compensation Expense of $960,949 from 2008 to 2009 is principally comprised of the following:

$	(519,000	)	decrease related to conversion of related party debt for common stock
	(253,000	)	decrease related to options issued for employee services
	(109,000	)	decrease related to warrants issued to borrow funds from a related party
	(63,000	)	decrease related to the reduction in personnel
	(17,000	)	decrease related to related party purchase of common stock for cash

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Interest Expense.

The $11,914 increase in Interest Expense from 2007 to 2008 and the increase of $60,543 from 2008 to 2009 was a result of the increase in borrowings under the secured note payable to related party.

Deemed Dividend on Preferred Stock.

There was no deemed dividend on preferred shares and common stock warrants issued for 2008 and 2009 as compared to $600,000 for 2007.

Loss on Derivative Financial Instruments.

Net Loss.

The Net Loss decreased $2,338,744 from 2007 to 2008 and decreased $1,383,394 from 2008 to 2009 due to the items described above.

FINANCIAL CONDITION - SIX MONTHS ENDED JUNE 30, 2009 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2008

	Six Months Ended June 30,									Increase (Decrease)
	2009			2008			2007			2009 from 2008			2008 from 2007
Net cash (used in) operating activities	$	(157,269	)	$	(208,669	)	$	(1,073,458	)	$	(51,400	)	$	(864,789	)
Net cash (used in) investing activities		-			(12,870	)		(29,101	)		(12,870	)		(16,231	)
Net cash provided by financing activities		180,000			252,508			865,816			(72,508	)		(613,308	)
Net increase (decrease) in cash	$	22,731		$	30,969		$	(236,743	)	$	(8,238	)	$	267,712
Cash balance at end of period	$	34,014		$	74,672		$	19,378

Operating Activities.

The net decrease of $864,789 in cash used in operations from 2007 to 2008 is primarily due to: (1) the decrease in personnel and related salaries as a result of: (i) the completion of certain large application development engagements during 2007; (ii) a decision by one of the healthcare systems that we contracted with to provide managed security services to their physicians, notified their physicians that effective January 1, 2008 they would no longer subsidize those costs, which resulted in the reduction of the number of physician practices we served for that system; (iii) the reduction of EMR related projects; (2) the elimination of business consulting and investment banking fees and (3) partially offset by an increase of personnel and salaries related to the implementation project management and consulting services. The net decrease of $51,400 in cash used in operations from 2008 to 2009 is primarily due to: (1) a decrease in personnel related to the completion of certain large application development engagements; (2) a reduction in product sales; (3) the effects of additional cost control measures and (4) partially offset by an increase of personnel and salaries related to the implementation project management and consulting services.

Investing Activities.

The changes in the net cash used in investing activities from 2007 through 2009 are insignificant.

Financing Activities.

The decrease of $613,308 in net cash provided by financing activities from 2007 to 2008 is due to: (1) a $405,000 decrease in investments in the company’s preferred stock and common stock and warrants; (2) a $315,000 decrease in proceeds from a note payable from an individual; and (3) a $107,000 net increase in related party short term debt. The decrease of $72,508 in cash provided by financing activities from 2008 to 2009 is due to: (1) a $95,000 decrease in investments in the company’s common stock and warrants; and (2) a $22,000 net increase in related party short term debt.

FORECAST FOR OUR CUSTOMER BASE

The increased reliance on IT and Telecommunications to manage costs and deploy enhanced business solutions has created an ideal business environment for Bluegate in 2009 and beyond. This trend is particularly evident in Healthcare where the roll-out of Electronic Medical Records and cost control initiatives are National priorities; however, the current economic conditions have resulted in projects being delayed or cancelled.

Bluegate Services

At June 30, 2009, we had approximately 250 Medical Grade Network® customers which we forecast will increase moderately this year. During the second half of 2008 and first half of 2009, we continued greater focus on more complex projects and applications, which resulted in more efficient use of our resources and higher profit margins on the project work.

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Professional Services

In October 2007 we were awarded a contract with a healthcare system in Houston, Texas to provide Implementation Project Management and consulting services. During 2008 and the first six months of 2009, we experienced an increase in revenue from this line of business and anticipate a continuing relationship with this Healthcare system. During the second and third quarters of 2008 we entered into contracts with healthcare related systems in Texas, Illinois and California to provide similar services. We will continue to put particular focus on the delivery of Implementation Project Management services to the growing Healthcare industry.

Application Development

Throughout 2007 we completed certain application development engagements which resulted in a decrease in both revenue and corresponding contractor expenses during 2008 and early 2009. We are currently pursuing multiple opportunities to expand this practice area.

LIQUIDITY AND CAPITAL RESOURCES

Operations for the six months ended June 30, 2009 have been funded by loans from a related party. Bluegate has continued to take steps to reduce its monthly operating expenses relating to its core business and has expanded its efforts in creating a market for its Professional Services organization.

As of June 30, 2009, our cash and cash equivalents were $34,014; total current assets were $411,617, total current liabilities were $1,916,637 and total stockholders’ deficit was $1,477,367. Effective January 1, 2008, three of the company’s executive officers reduced their annual base salaries to $100,000 each (which were further reduced to $24,000 effective May 1, 2008) until the company achieves a net positive cash flow from operations. Effective May 31, 2009, one of the officers resigned from the company.

We intend to use debt to cover the anticipated negative cash flow into the third quarter of 2009, at which time we project to be operating at a break-even cash flow mode. We are seeking additional capital to fund potential costs associated with 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, expand participation in our Medical Grade Network® and grow our Professional Service organization.

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.

Our future capital requirements will depend upon many factors, including the following:

-	The cost of operating delivering the Medical Grade Network® services

-	The cost of sales and marketing

-	The rate at which we expand our operations

-	Attractive acquisition opportunities

-	The response of competitors

-	Capital expenditures

ITEM 4T. CONTROLS AND PROCEDURES

(a) 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 June 30, 2009. 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 June 30, 2009 to ensure that required information is disclosed on a timely basis in its reports filed or furnished under the Exchange Act.

(b) 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 June 30, 2009 that has materially affected, or is 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

Manfred Sternberg, director and officer and William Koehler, director and former officer, filed with the Texas Workforce Commission wage claims for unpaid wages for $38,000 and $42,000, respectively. We have provided the employer responses to the Texas Workforce Commission and are waiting for a written decision from the Texas Workforce Commission on the findings.

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

NONE.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Effective July 29, 2009, Charles Leibold will become a Director as a result of: (A) the June 12, 2009 written consent of a majority of our shareholders; (B) the June 22, 2009 filing of a Preliminary Information Statement; (C) the July 8, 2009 filing of a Definitive Information Statement; and, (D) the July 9, 2009 mailing of the Definitive Information Statement to our shareholders. The Definitive Information Statement had a record date of June 25, 2009. Mr. Leibold remains our Chief Financial Officer and Principal Accounting Officer.

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

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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:	July 17, 2009	/s/	Stephen J. Sperco

			Stephen J. Sperco,
			Chief Executive Officer


Bluegate Corporation

Date:	July 17, 2009	/s/	Charles E. Leibold

			Charles E. Leibold,
			Chief Financial Officer and Principal Accounting Officer

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