s1bluegate042709.htm

POS AM 1 s1bluegate042709.htm S1 BLUEGATE CORPORATION 042709 s1bluegate042709.htm

As filed with the Securities and Exchange Commission on April 28, 2009

Registration No. 333-145492

United States

Securities and Exchange Commission

Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT

FORM S-1

Registration Statement Under The

Securities Act of 1933

BLUEGATE CORPORATION

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of incorporation or organization)

8090

(Primary Standard Industrial Classification Code Number)

76-0640970

(IRS Employer Identification No.)

BLUEGATE CORPORATION

701 North Post Oak Road, Suite 600

Houston, Texas 77024

voice: (713) 686-1100 fax: (713) 682-7402

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Stephen J. Sperco, CEO

701 North Post Oak Road, Suite 600

Houston, Texas 77024

voice: (713) 686-1100 fax: (713) 682-7402

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With a Copy to:

Joel Seidner, Esq.

880 Tully Road #50

Houston, Texas 77079

voice: (281) 493-1311 fax. (281) 667-3292

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

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. (Check one):

Large accelerated filer	[ ]	Accelerated filer	[ ]

Non-accelerated filer	[ ]	Smaller reporting company	[X]

CALCULATION OF REGISTRATION FEE

Title of securities to be registered	Amount to be registered		Proposed maximum offering price per unit (1)		Proposed maximum aggregate offering price		Amount of registration fee
Common Stock par value $0.001		12,082,285	$	0.40	$	4,832,914	$	149

Common Stock par value $0.001 underlying options and warrants		26,563,292	$	0.40	$	11,660,978		359

TOTAL REGISTRATION FEE							$	508	(2	)(3)

(1)

The Proposed Maximum Offering Price Per Share was computed pursuant to Rule 457 under the Securities Act of 1933, as amended (the “Securities Act”) solely for the purpose of calculating the registration fee. This fee computation is based on the average of the bid and asked price of the common stock on the OTCBB under the stock symbol “BGAT” on August 13, 2007.

(2)	Previously paid.

(3)	Pursuant to Rule 429, the Prospectus herein also relates to our prior effective registration statement on SEC file number 333-125465 that was previously filed and the filing fee paid for on June 3, 2005.

(4)	On April 24, 2009, the closing bid price of our common stock on the OTCBB was $0.02 per share.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

FORM S-1

PART I

INFORMATION REQUIRED IN A PROSPECTUS

WE HAVE FILED A REGISTRATION STATEMENT RELATING TO THESE SECURITIES WITH THE SECURITIES AND EXCHANGE COMMISSION. WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. THE INFORMATION IN THIS PROSPECTUS IS NOT

COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE

NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject To Completion April 28, 2009

PROSPECTUS

BLUEGATE CORPORATION

701 North Post Oak Road, Suite 600

Houston, Texas 77024

voice: (713) 686-1100 fax: (713) 682-7402

38,645,577 Shares of Common Stock

This prospectus relates to the sale of up to 38,645,577 shares of our common stock by Selling Stockholders.

We will not receive proceeds from the sale of our shares by the Selling Stockholders. However, we may receive proceeds from the exercise of the options and warrants overlying the common stock. If all the options and warrants are exercised, we could receive $9,033,000.

Our common stock is traded on the OTCBB under the trading symbol “BGAT."

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 5 OF THIS PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE OUR STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is ______________,2009.

TABLE OF CONTENTS
	Page

Available Information	5
Summary Information and Risk Factors	5
Use of Proceeds	8
The Offering	8
Selling Security Holders	8
Plan of Distribution	12
Description of Securities to be Registered	13
Interests of Named Experts and Counsel	13
Description of Business	14
Description of Property	16
Legal Proceedings	16
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters	17
Financial Statements	18 and F1
Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Directors, Executive Officers, Promoters and Control Persons	55
Executive Compensation	57
Security Ownership of Certain Beneficial Owners and Management	60
Transactions with Related Persons, Promoters and Certain Control Persons	61
Disclosure of Commission Position on Indemnification for Securities Act Liabilities	62

AVAILABLE INFORMATION

We are currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We file periodic reports, proxy materials and other information with the Securities and Exchange Commission (the "Commission"). In addition, we will furnish stockholders with annual reports containing audited financial statements certified by our independent registered public accounting firm and interim reports containing unaudited financial information as it may be necessary or desirable. We will provide without charge to each person who receives a copy of this prospectus, upon written or oral request, a copy of any information that is incorporated by reference in this prospectus (not including exhibits to the information that is incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Such request should be directed to: Stephen J. Sperco, CEO, 701 North Post Oak Road, Suite 600, Houston, Texas 77024, voice: (713) 686-1100 fax: (713) 682-7402. Our Web site is www.bluegate.com.

We have filed with the Securities and Exchange Commission a Registration Statement under the Securities Act of 1933, as amended (the "Securities Act") with respect to the securities offered by this prospectus. This prospectus does not contain all of the information set forth in the Registration Statement, parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to us and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, that may be inspected without charge at the Public Reference Room maintained by the Commission at 100 F Street N.E., Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at (http://www.sec.gov).

SUMMARY INFORMATION

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, telecommunication, implementation project management and consulting through its professional services organization.

In 2004, we filed an amendment to our Articles of Incorporation to change our name to Bluegate Corporation. Our former name was Crescent Communication, Inc. In this prospectus, we refer to ourselves as "Bluegate," "We," Us," "Our" and the "Company." References to us also include our subsidiary, Trilliant Technology Group, Inc. (“TTG”). References to our common stock herein give effect to our 20:1 reverse stock split in 2004. In 2004, we took corporate action to increase the number of our authorized shares of common stock to 50,000,000 shares of common stock. Our executive offices are located at: Bluegate Corporation, 701 North Post Oak Road, Suite 600, Houston, Texas 77024, voice: (713) 686-1100 fax: (713) 682-7402.

Our growth is dependent on our attaining profit from our operations and our raising capital through the sale of stock or debt. There is no assurance that we will be able to raise any equity financing or sell any of our services at a profit. Our functional currency is the U.S. dollar. Our independent registered public accounting firm included an explanatory paragraph in their report, dated April 9, 2009, indicating substantial doubt exists relating to our ability to continue as a going concern.

Our stock is traded on the OTCBB. Our trading symbol is "BGAT."

RISK FACTORS

Our future performance is subject to a variety of risks. If any of the events or circumstances described in the following risk factors actually occurs, our business, financial condition or results of operations could suffer. In addition to the following disclosures, please refer to the other information contained in this report, including consolidated financial statements and related notes, and information contained in the Company’s other SEC filings. This document contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. This section discusses the business risk factors that might cause those differences.

RISKS RELATED TO OUR FINANCIAL OPERATIONS:

OUR PAST LOSSES RAISE DOUBTS ABOUT OUR ABILITY TO OPERATE PROFITABLY OR CONTINUE AS A GOING CONCERN

We have experienced substantial operating losses and we expect to incur significant operating losses until sales increase. We will also need to raise sufficient funds to finance our activities. We may be unable to achieve or sustain profitability. Our independent registered public accounting firm included an explanatory paragraph in their report, dated April 9, 2009, indicating substantial doubt about our ability to continue as a going concern. These factors raise substantial doubt as to our ability to continue as a going concern.

OUR EXPECTED FUTURE LOSSES RAISE DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN UNLESS WE CAN RAISE

CAPITAL

Future events may lead to increased costs that could make it difficult for us to succeed. To raise additional capital, we may sell additional equity securities, or accept debt financing or obtain financing through a bank or other entity. There is no limit as to the amount of debt we may incur. Additional financing may not be available to us or may not be available on terms acceptable to us. If additional funds are raised through the issuance of additional stock, there may be a significant dilution in the value of our outstanding common stock.

WE MAY NOT BE ABLE TO RAISE THE REQUIRED CAPITAL TO CONDUCT OUR OPERATIONS

We may require additional capital resources in order to conduct our operations. If we cannot obtain additional funding, we may make reductions in the scope and size of our operations. In order to grow and expand our business, and to introduce our services to the marketplace, we will need to raise additional funds.

RISKS RELATED TO OUR BUSINESS OPERATIONS:

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.

IF WE DO NOT KEEP PACE WITH OUR COMPETITORS AND WITH TECHNOLOGICAL AND MARKET CHANGES, OUR SERVICES MAY BECOME OBSOLETE AND OUR BUSINESS MAY SUFFER

The market for our services is competitive and could be subject to rapid technological changes. We believe that there are potentially many competitive approaches being pursued, including some by private companies from which information is difficult to obtain. Many of our competitors have significantly greater resources and more services that directly compete with our services. Our competitors may have developed, or could in the future develop, new technologies that compete with our services even render our services obsolete.

WE COULD HAVE SYSTEMS FAILURES THAT COULD ADVERSELY AFFECT OUR BUSINESS

Our business depends on the efficient and uninterrupted operation of our computer and communications hardware systems and infrastructure. Although we have taken precautions against system failure, interruptions could result from natural disasters as well as power losses, Internet failures, telecommunication failures and similar events. Our systems are also subject to human error, security breaches, computer viruses, break-ins, "denial of service" attacks, sabotage, intentional acts of vandalism and tampering designed to disrupt our computer systems. We also lease telecommunications lines from local and regional carriers, whose service may be interrupted. Any damage or failure that interrupts or delays network operations could materially and adversely affect our business.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL TO ADEQUATELY ADDRESS SECURITY ISSUES

We have taken measures to protect the integrity of our technology infrastructure and the privacy of confidential information. Nonetheless, our technology infrastructure is potentially vulnerable to physical or electronic break-ins, viruses or similar problems. If a person or entity circumvents its security measures, they could jeopardize the security of confidential information stored on our systems, misappropriate proprietary information or cause interruptions in our operations. We may be required to make substantial additional investments and efforts to protect against or remedy security breaches. Security breaches that result in access to confidential information could damage our reputation and expose us to a risk of loss or liability.

RISKS RELATED TO OUR SECURITIES:

THE SHARES AVAILABLE FOR SALE BY THE SELLING STOCKHOLDERS COULD SIGNIFICANTLY REDUCE THE MARKET PRICE OF OUR

COMMON STOCK

A total of 38,645,577 shares of our common stock are being registered for resale under this prospectus. The market price of our common stock could drop if a substantial amount of these shares are sold in the public market. A drop in the market price will reduce the value of your investment.

LACK OF AUTHORIZED STOCK TO COVER ALL OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES

As of March 31, 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). We intend to seek consent of the required majority of shareholders in the near future to increase Bluegate’s authorized shares.

SELLING STOCKHOLDERS MAY SELL SECURITIES AT ANY PRICE OR TIME WHICH COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK

After effectiveness of this prospectus, the Selling Stockholders may offer and sell their shares at a price and time determined by them. The timing of sales and the price at which the shares are sold by the Selling Stockholders could have an adverse effect upon the public market for our common stock.

SINCE WE HAVE NOT PAID ANY DIVIDENDS ON OUR COMMON STOCK AND DO NOT INTEND TO DO SO IN THE FUTURE, A PURCHASER OF OUR COMMON STOCK WILL ONLY REALIZE A GAIN ON HIS INVESTMENT IF THE MARKET PRICE OF OUR COMMON STOCK INCREASES

We have never paid, and do not intend, to pay any cash dividends on our common Stock for the foreseeable future. An investor in this offering, in all likelihood, will only realize a profit on his investment if the market price of our common stock increases in value.

BECAUSE SHARES OF OUR COMMON STOCK MAY MOST LIKELY TRADE UNDER $5.00 PER SHARE, THE APPLICATION OF THE PENNY STOCK REGULATION COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND MAY AFFECT THE ABILITY OF HOLDERS OF OUR COMMON STOCK TO SELL THEIR SHARES

Our securities may be considered a penny stock. Penny stocks generally are defined as securities with a price of less than $5.00 per share other than securities registered on national securities exchanges or quoted on the Nasdaq stock market, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. Our securities may be subject to penny stock rules that impose additional sales practice requirements on broker-dealers who sell penny stock securities to persons other than established customers and accredited investors. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of penny stock securities and have received the purchaser's written consent to the transaction prior to the purchase. For any transaction involving a penny stock, unless exempt, the penny stock rules require the delivery, prior to the transaction, of a disclosure schedule prescribed by the Commission relating to the penny stock market. The broker-dealer also must disclose the sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Monthly statements must be sent by the broker-dealer disclosing recent price information on the limited market in penny stocks. The penny stock rules may restrict the ability of broker-dealers to sell our securities and may have the effect of reducing the level of trading activity of our common stock in the public market.

SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of restricted common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144. Any substantial sale of our common stock pursuant to Rule 144 or pursuant to any resale prospectus may have material adverse effect on the market price of our securities.

RISKS RELATED TO OUR CORPORATE GOVERNANCE:

OUR OFFICERS AND DIRECTORS HAVE LIMITED LIABILITY AND HAVE INDEMNITY RIGHTS

The Nevada Revised Statutes, our Articles of Incorporation and our By-Laws provide that we may indemnify our officers and directors against losses or liabilities which arise in their corporate capacity. The effect of these provisions could be to dissuade lawsuits against our officers and directors.

USE OF PROCEEDS

We will pay for the cost of registering the shares of common stock in this offering. We will not receive any proceeds from the sale of the common stock by the Selling Stockholders. However, we may receive proceeds from the exercise of the options and warrants overlying the common stock. If all the options and warrants overlying the common stock in this offering were exercised, we will receive proceeds in the aggregate amount of $9,033,000. We will use such proceeds, if received, for general corporate purposes and working capital.

THE OFFERING


Outstanding Common Stock Before This Offering		26,033,565 shares of common stock are outstanding as of April 24, 2009, including 12,082,285 shares of common stock offered in this prospectus.

Common Stock Offered		A total of 38,645,577 shares of common stock, consisting of 12,082,285 shares of common stock already outstanding, and 26,563,292 shares of common stock underlying options and warrants. The options and warrants have not been exercised yet.

Outstanding Common Stock After This Offering		52,596,857 shares of common stock, if all of the 26,563,292 options and warrants are exercised. These options and warrants have exercise prices ranging from $0.0333334 per share to $1.50 per share, and expire at various times through the year 2012.

Offering Price Of the Common Stock		Determined at the time of sale by the selling stockholders.

Proceeds		We will not receive any proceeds from the sale of the common stock offered by the selling stockholders that may be sold pursuant to this prospectus. If all the options and warrants are exercised, we could receive approximately $9,033,000.

Risk Factors		The securities offered hereby involve a high degree of risk. See "Summary of Risk Factors" of this prospectus before making a decision to purchase our stock.

SELLING SECURITY HOLDERS

The following table sets forth the name of each Selling Stockholder, the number of shares of common stock offered by each Selling Stockholder, the number of shares of common stock to be owned by each Selling Stockholder if all shares were to be sold in this offering and the percentage of our common stock that will be owned by each Selling Stockholder if all shares are sold in this the offering. The shares of common stock being offered hereby are being registered to permit public secondary trading and the Selling Stockholders may offer all, none or a portion of the shares for resale from time to time.

Name Of Selling Stockholder (1)	Shares Owned Before Offering	Shares Offered For Sale	Shares Owned After Offering If All Offered Shares Are Sold (2)	Percentage Owned After Offering If All Offered Shares Are Sold (2)

Manfred Sternberg (3) (a - 1,668,279) (b - 3,375,000) (c - 5,000)	7,698,279	5,048,279	2,650,000	10%
Manfred D. Sternberg & Associates PC (4) (c)	308,594	308,594	-	0%
Five Star Mountain LP (4) (c)	286,995	286,995	-	0%
Manfred Sternberg Jr. Cust For Maggie Sternberg (5) (c)	110,000	110,000	-	0%
Manfred Sternberg Jr. Cust For Max Sternberg (5) (c)	110,000	110,000	-	0%
William Koehler (6) (a - 356,750) (b - 1,590,000) (c - 500,000) (d - 328,367)	4,975,117	2,775,117	2,200,000	8%
Albert Koehler (7) (a)	654,050	654,050	-	0%
Albert M. Koehler, Sr. (7) (a - 76,013) (b - 7,500) (c - 4,630)	88,143	88,143	-	0%
Robert Davis (8) (a)	35,023	35,023	-	0%
Madred Partners Ltd (9) (c)	874,205	874,205	-	0%
Altitude Partners (9) (a)	500,000	500,000	-	0%
MPH Production Company Inc. (9) (c)	40,000	40,000	-	0%
Catherine Margaret Davis (10) (c)	110,000	110,000	-	0%
Virginia Harper Davis (10) (c)	110,000	110,000	-	0%
Sarah Beth Davis (10) (c)	110,000	110,000	-	0%
Stephen J. Sperco (11) (a - 6,406,750) (b - 1,200,000)	10,706,750	7,606,750	3,100,000	12%
SAI Corporation (12) (a)	4,713,500	2,213,500	2,500,000	10%
A. T. Sperco (13) (a)	25,000	25,000	-	0%
Charles E. Leibold (14) (b)	850,000	600,000	250,000	1%
Larry Walker (15) (b - 590,000) (d - 24,836)	864,836	614,836	250,000	1%

Name Of Selling Stockholder (1)	Shares Owned Before Offering	Shares Offered For Sale	Shares Owned After Offering If All Offered Shares Are Sold (2)	Percentage Owned After Offering If All Offered Shares Are Sold (2)
David A. Draper (16) (b)	237,503	237,503	-	0%
Richard Yee (17) (b)	321,600	321,600	-	0%
Don Corley (18) (b)	265,750	265,750	-	0%
Gilbert Gertner (19) (b)	350,000	350,000	-	0%
The Chase Family Trust (20) (a - 312,641) (c - 805,400)	1,316,041	1,118,041	198,000	0%
Andrew Patrick Chase (21) (c)	151,350	151,350	-	0%
Samuel M. Chase, III (21) (c)	151,350	151,350	-	0%
Gregory J. Micek (22) (a - 606,750) (b - 350,000)	956,750	956,750	-	0%
John J. Micek, Jr. (23) (a)	453,375	453,375	-	0%
Anna Louise Micek (23) (a)	303,375	303,375	-	0%
Laura Micek & Shun Kwong (23) (a)	100,000	100,000	-	0%
Reece & Jenny Micek (23) (a)	50,000	50,000	-	0%
Jeff Olexa (24) (c)	330,045	330,045	-	0%
Dale Geary (25) (a)	275,000	25,000	250,000	1%
John Geary (26) (a)	25,000	25,000	-	0%
Dorothy T. Nicholson d/b/a Nicholson Interests (a)	625,281	625,281	-	0%
Icon Capital Partners, LP (a)	608,100	608,100	-	0%
David Ray Bartula (a)	706,750	506,750	200,000	0%
L. Cullen and Patricia A. Moore (a)	506,750	506,750	-	0%
Jean & Amy Frizzell (a)	506,750	506,750	-	0%
The Nutmeg Group LLC (a)	456,075	456,075	-	0%
George Speaks (c)	422,825	422,825	-	0%
The Styles Company (c)	375,000	375,000	-	0%
Lee W. Slade (a)	312,641	312,641	-	0%
Martin Ostroff (a)	312,641	312,641	-	0%
John E. Kemper (a)	304,050	304,050	-	0%
Olympia LLC (a)	304,050	304,050	-	0%
Katmas Investments GP Inc. d/b/a Wallstreet Texas (a)	304,050	304,050	-	0%
Alex Bitoun (b - 114,250) (d - 161,904)	276,154	276,154	-	0%
Lynne Randall (b - 89,250) (d - 160,968)	250,218	250,218	-	0%
Herbert Arnold Duke (c)	247,463	247,463	-	0%
Joseph P. Gutkowski (a)	320,000	240,000	80,000	0%
Dana Kirkpatrick (b)	213,250	213,250	-	0%
David Schuller (a)	202,700	202,700	-	0%
Lewis Opportunity Fund (a)	100,000	100,000	-	0%
Platinum Partners (c)	200,000	200,000	-	0%
Diablo Consultants (c)	99,000	99,000	-	0%
Michael McDonald (b)	160,000	160,000	-	0%
Eric Kelly (d)	166,277	166,277	-	0%
Barry Goldstein (c)	164,976	164,976	-	0%
Glenn Murer (c)	164,976	164,976	-	0%
Chad Follmer (a)	152,025	152,025	-	0%
David D. Wood (a)	152,025	152,025	-	0%
Joe Koshy (a)	152,025	152,025	-	0%
Teddy Aven (a)	152,025	152,025	-	0%
Mark Krakowski (c)	148,488	148,488	-	0%
Reginald Wells (b - 119,800) (d - 15856)	135,656	135,656	-	0%
Bruno Loviat (b -90,000) (d - 28,063)	118,063	118,063	-	0%
Teddy & Frances Aven (a)	56,250	56,250	-	0%
Roberto Mora-Ramos (d)	106,012	106,012	-	0%
John R. Werner (a)	101,350	101,350	-	0%
Lisa Thompson (a)	101,350	101,350	-	0%
Raymond A. Bartula (a)	141,350	101,350	40,000	0%
George T. Sharp (c)	100,000	100,000	-	0%
Joseph Noel (c)	100,000	100,000	-	0%
Joe B. Wolfe (27) (c)	97,768	97,768	-	0%
Bernie Milligan (b)	90,835	90,835	-	0%
Christopher Hett (c)	82,488	82,488	-	0%
F&J Partnership (c)	82,488	82,488	-	0%
Frederick Wedell (c)	82,488	82,488	-	0%
James R. Echols Sr (c)	82,488	82,488	-	0%
John O'Shea (27) (c)	82,488	82,488	-	0%
Operation Dogbone (c)	82,488	82,488	-	0%

Name Of Selling Stockholder (1)	Shares Owned Before Offering	Shares Offered For Sale	Shares Owned After Offering If All Offered Shares Are Sold (2)	Percentage Owned After Offering If All Offered Shares Are Sold (2)
W. Cobb Hazelrig (c)	82,488	82,488	-	0%
Wayne O'Neill (a)	78,161	78,161	-	0%
Jimmy Riggle (b)	63,750	63,750	-	0%
Richard Louise (27) (c)	59,589	59,589	-	0%
Charles Christopher Caldwell (a)	52,107	52,107	-	0%
Darren Bartula (a)	70,675	50,675	20,000	0%
Elissa & Clay McCollor (a)	50,000	50,000	-	0%
Thomas Buehler (27) (c)	50,000	50,000	-	0%
Leah Fearmonti (b)	55,000	50,000	5,000	0%
Lisa Anderson-Williams (b)	50,000	50,000	-	0%
Richard Hasenmyer (b - 38,250) (d - 10,757)	49,007	49,007	-	0%
Jon Dangar (27) (c)	44,587	44,587	-	0%
William Pritchard (c)	41,244	41,244	-	0%
Randall W. Heinrich (c)	34,000	34,000	-	0%
Marc Bitoun (d)	33,488	33,488	-	0%
Andy Martin (27) (c)	32,400	32,400	-	0%
Jeff Casinger (b - 25,913) (d - 6,334)	32,247	32,247	-	0%
Westminster Securities Corporation (27) (c)	32,000	32,000	-	0%
Dr. Ed Zabrek (c)	30,000	30,000	-	0%
Sherri Poole (a)	25,000	25,000	-	0%
Scott Bowman (27) (c)	22,293	22,293	-	0%
Albert F Vickers (d)	18,708	18,708	-	0%
Adam Cabibi (27) (c)	17,850	17,850	-	0%
Miranda Weaver (b)	14,500	14,500	-	0%
Teton Investment Partners LLC (27) (c)	14,000	14,000	-	0%
Paul J. Alar (27) (c)	14,000	14,000	-	0%
Hilda Sepulveda (b)	10,500	10,500	-	0%
Larry King (b)	9,750	9,750	-	0%
Mike Bumgardner (d)	10,991	10,991	-	0%
Brushard Higgins (b)	8,250	8,250	-	0%
Dr. Paul Handel (c)	10,000	10,000	-	0%
Dr. Thomas Garcia (c)	10,000	10,000	-	0%
Dr. William Gilmer (c)	10,000	10,000	-	0%
Dr. Kim Dunn (c)	10,000	10,000	-	0%
Brian Smith (b)	8,250	8,250	-	0%
Rodney Shelton (b)	6,500	6,500	-	0%
Deborah Dixon (b)	6,000	6,000	-	0%
Barbara Fullerton (b)	5,700	5,700	-	0%
Joe Singleton (b)	5,500	5,500	-	0%
Anita Marin (b)	5,250	5,250	-	0%
Louis Vetrano (d)	4,677	4,677	-	0%
Jason Lussier (b)	4,500	4,500	-	0%
Donantonio Williams (b)	4,250	4,250	-	0%
Nate Lewis (b)	4,000	4,000	-	0%
Bryan Emerson (27) (c)	3,600	3,600	-	0%
Angela Clare-Allen (b)	3,250	3,250	-	0%
Shelly Rhoden (b)	3,250	3,250	-	0%
MidSouth Capital Inc. (27) (c)	3,150	3,150	-	0%
Robby Delmenhorst (b)	3,000	3,000	-	0%
Kevin Gibbons (d)	1,637	1,637	-	0%
James Story (d)	1,546	1,546	-	0%
Al Miranda (d)	87	87	-	0%
Ronald Stark (d)	87	87	-	0%

	50,388,577	38,645,577	11,743,000

(1) To the best of our knowledge, no Selling Stockholder has a short position in our common stock. To the best of our knowledge, no Selling Stockholder that is a beneficial owner of any of these shares is a broker-dealer or an affiliate of a broker-dealer, except for Westminster Securities Corporation, John O'Shea, Richard Louise, Joe Wolfe, Jon Dangar, Scott Bowman, Paul Alar, Andy Martin, Teton Investment Partners LLC, Thomas Buehler, Adam Cabibi, Bryan Emerson and MidSouth Capital Inc. These broker-dealers or affiliates of broker-dealers that are selling shareholders either (1) acquired the securities in the ordinary course of business or (2) at the time of acquisition of the securities we are registering for resale, the seller had no agreements or understandings, directly or indirectly, with any person, to distribute the securities. See footnote # 27. Except as set forth below, no Selling Stockholder has held any position or office, or has had any material relationship with us or any of our affiliates within the past three years. Includes the heirs, successors and assigns of the Selling Stockholders. Upon notification to us from a Selling Stockholder that there is an heir, successor or assign, we will file a prospectus supplement to provide information about such heir, successor or assign.

(2) Assumes no sales are transacted by the Selling Stockholder during the offering period other than in this offering. The applicable percentage of ownership is based on 26,033,565 shares of our common stock outstanding as of April 24, 2009 plus the additional shares that the selling stockholder is deemed to beneficially own. Any percentage less than one percent is reported as "0".

(3) Manfred Sternberg is our Chief Strategy Officer and one of our directors.

(4) These entities are either owned or controlled by Manfred Sternberg our Chief Strategy Officer and one of our directors.

(5) These persons are relatives of Manfred Sternberg our Chief Strategy Officer and one of our directors.

(6) William Koehler is our President, COO and one of our directors.

(7) These persons are relatives of William Koehler our President, COO and one of our directors.

(8) Robert Davis was formerly one of our directors.

(9) These entities are either owned or controlled by Robert Davis who was formerly one of our directors.

(10) These persons are relatives of Robert Davis who was formerly one of our directors.

(11) Stephen J. Sperco is our CEO and one of our directors.

(12) This entity is either owned or controlled by Stephen J. Sperco our CEO and one of our directors.

(13) This person is a relative of Stephen J. Sperco our CEO and one of our directors.

(14) Charles E. Leibold is our CFO and Senior Vice President.

(15) Larry Walker is the President of our subsidiary, Trilliant Technology Group, Inc.

(16) David A. Draper was formerly our Senior Vice President of Business Development and Strategy.

(17) Richard Yee was formerly our Senior Vice President of Operations.

(18) Don Corley is Vice President of Division Sales.

(19) Gilbert Gertner was formerly one of our directors.

(20) The Chase Family Trust is controlled by the spouse of Samuel M. Chase, Jr. who was affiliated with Masynda Corporation, which was formerly our financial advisor.

(21) These persons are relatives of Samuel M. Chase, Jr. who was affiliated with Masynda Corporation, which was formerly our financial advisor.

(22) Gregory J. Micek was formerly our CFO.

(23) These persons are relatives of Gregory Micek who was formerly our CFO.

(24) Jeff Olexa was formerly our Chief Technology Officer and formerly one of our directors.

(25) Dale Geary is one of our directors.

(26) This person is a relative of Dale Geary one of our directors.

(27) These parties are broker-dealers or affiliates of broker-dealers that are selling shareholders either (1) acquired the securities in the ordinary course of business or (2) at the time of acquisition of the securities we are registering for resale, the seller had no agreements or understandings, directly or indirectly, with any person, to distribute the securities.

(a) Shares and warrants issued for investment in private placement offerings.

(b) Options issued as compensation.

(c) Shares and warrants issued primarily as a result of the company borrowing funds, payment for services rendered and settlement of debts.

(d) Shares issued for acquisition of Trilliant Corporation assets.

PLAN OF DISTRIBUTION

The Selling Stockholders (of record ownership and of beneficial ownership) and any of their pledges, assignees, and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders are not required to sell any shares in this offering. There is no assurance that the Selling Stockholders will sell any or all of the common stock in this offering. The Selling Stockholders may use any one or more of the following methods when selling shares:

-	Ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers.

-	Block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction.

-	Purchases by a broker-dealer as principal and resale by the broker-dealer for its own account.

-	An exchange distribution following the rules of the applicable exchange.

-	Privately negotiated transactions.

-	Short sales or sales of shares not previously owned by the seller.

-	An agreement between a broker-dealer and a Selling Stockholder to sell a specified number of such shares at a stipulated price per share.

-	A combination of any such methods of sale.

-	Any other lawful method.

The Selling Stockholder may also engage in:

-	Short selling against the box, which is making a short sale when the seller already owns the shares.

-	Buying puts, which is a contract whereby the person buying the contract may sell shares at a specified price by a specified date.

-	Selling calls, which is a contract giving the person buying the contract the right to buy shares at a specified price by a specified date.

-	Selling under Rule 144 under the Securities Act, if available, rather than under this prospectus.

-	Other transactions in our securities or in derivatives of our securities and the subsequent sale or delivery of shares by the stock holder.

-	Pledging shares to their brokers under the margin provisions of customer agreements. If a Selling Stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder in amounts to be negotiated. If any broker-dealer acts as agent for the purchaser of shares, the broker-dealer may receive commission from the purchaser in amounts to be negotiated. We do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be considered to be "underwriters" within the meaning of the Securities Act for such sales. An underwriter is a person who has purchased shares from an issuer with a view towards distributing the shares to the public. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be considered to be underwriting commissions or discounts under the Securities Act.

We are required to pay all fees and expenses incident to the registration of the shares in this offering. However, we will not pay any commissions or any other fees in connection with the resale of the common stock in this offering.

If we are notified by a Selling Stockholder that they have a material arrangement with a broker-dealer for the resale of the common stock, then we would be required to amend the Registration Statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the Selling Stockholder and the broker-dealer.

DESCRIPTION OF SECURITIES TO BE REGISTERED

COMMON STOCK

The holders of shares of our common stock are entitled to one vote per share on each matter submitted to a vote of stockholders. If we are required to go into liquidation, holders of common stock are entitled to share ratably in the distribution of assets remaining after payment of liabilities and preferred stock. Holders of common stock have no cumulative voting rights. Holders of common stock have no preemptive rights. Holders of common stock are entitled to dividends as declared by the board of directors out of funds legally available. The outstanding common stock is validly issued and non-assessable.

As of April 24, 2009, we had 26,033,565 shares outstanding of which 22,496,334 shares were restricted shares. All 22,496,334 restricted shares are more than one year old and may be sold pursuant to Rule 144.

PREFERRED STOCK

In June 2007 Bluegate's board of directors approved the issuance of 48 shares of Series C voting convertible non-redeemable preferred stock with a par value of $0.001 per share and a liquidation value of $12,500 per share. Each share of Series C convertible preferred stock may be converted, at the option of the shareholder, into 25,000 shares of common stock or a total of 1,200,000 shares of common stock. Each share of preferred stock has 15 times the number of votes its conversion-equivalent number of shares of common stock, or 375,000 votes per share of preferred stock. The 48 shares of preferred stock will have an aggregate of 18 million votes.

Effective June 28, 2007, we sold 8 shares of Series C preferred stock for $100,000 in cash to SAI Corporation ("SAIC"), a corporation controlled by Stephen Sperco ("Sperco"). We also granted to SAIC warrants to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. On the same day we sold 40 shares of Series C preferred stock for $500,000 in cash to Sperco. We also granted to Sperco warrants to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. Bluegate’s net tangible book value (deficit) per share was ($0.13) prior to the investment in the preferred stock by Mr. Sperco and SAI Corporation on June 28, 2007. After the $600,000 cash investment and assuming that Mr. Sperco and SAI Corporation converted all of the 48 shares of preferred stock into 1,200,000 shares of common stock and exercised all of the 7,200,000 warrants at $0.17 per share resulting in $1,020,000 proceeds to Bluegate, Bluegate’s net tangible book value (deficit) per share would have been reduced to ($0.01). Mr. Sperco is our CEO and a director. On February 14, 2008, we finalized and consummated a transaction with a deemed effective date of February 1, 2008 whereby we issued 9,150,000 shares of stock for the conversion of related party debts of directors totaling $305,000. The conversion and purchase price per share was $0.0333334. The excess of the fair value of the stock over the debt converted and shares purchased totaled $518,500 and was recorded as compensation expense. The following individuals or related entities converted debt and received the following shares: (i) Stephen Sperco, Director and CEO, received 3,000,000 shares; (ii) SAI Corporation, an entity controlled by Stephen Sperco, received 1,500,000 shares; (iii) Manfred Sternberg, Director and Chief Strategy Officer, received 2,400,000 shares; (iv) William Koehler, Director and President, received 2,100,000 shares; and, (v) Dale Geary, Director, received, 150,000 shares. As a result of this transaction, certain adjustment provisions in these warrant agreements were triggered. Pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 6,000,000 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share. As a result of his purchase of Series C Preferred Stock described above, and his previously and subsequently acquired stock, options and warrants, Mr. Sperco beneficially owns 44% of our common stock without taking into account the super voting power of the Preferred Stock, and 62% when taking into account the super voting power of the Preferred Stock.

INTERESTS OF NAMED EXPERTS AND COUNSEL

Joel Seidner, Esq., Attorney At Law, 880 Tully Road #50, Houston, Texas 77079 Tel. (281) 493-1311, has acted as our legal counsel for this offering. The validity of the shares offered by this prospectus has been passed upon for us by Mr. Seidner.

Our consolidated balance sheets as of December 31, 2008 and 2007 and the consolidated statements of operations, stockholders' deficit, and cash flows, for the two years then ended, have been included in the registration statement on Form S-1 of which this prospectus forms a part, in reliance on the report of MALONE & BAILEY, PC, an Independent Registered Public Accounting Firm, given on the authority of that firm as experts in auditing and accounting.

DESCRIPTION OF BUSINESS

INTRODUCTION

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.

In the Company’s Form 10-K, we refer to ourselves as "Bluegate", "We", "Us", “the Company”, and "Our." References to our common stock herein give effect to our 20:1 reverse stock split which occurred in 2004. In 2004, we took corporate action to increase the number of our authorized shares of common stock to be 50,000,000 shares of common stock.

Our executive offices are located at: Bluegate Corporation, 701 North Post Oak Road, Suite 600, Houston, Texas 77024, tel. voice: 713-686-1100, fax: 713-682-7402. Our Web site is www.bluegate.com.

Our growth is dependent on attaining profit from our operations and our raising capital through the sale of stock or debt. There is no assurance that we will be able to raise any equity financing or sell any of our products at a profit.

Our functional currency is the U.S. dollar. Our independent registered public accounting firm issued a going concern qualification in their report dated April 9, 2009, which raises substantial doubt about our ability to continue as a going concern. Our stock is traded on the OTCBB. Our trading symbol is "BGAT."

CORPORATE HISTORY

In 1996, Congress passed the Health Insurance Portability and Accountability Act ("HIPAA"). Two of the many features of HIPAA were a mandate that the healthcare industry move toward using electronic communication technology to streamline and reduce the cost of healthcare, and a requirement that healthcare providers treat virtually all healthcare information as confidential, especially when electronically transmitted.

In 2001, Mr. Manfred Sternberg acquired effective control of the company and during 2002 and 2003 under his leadership, the company commenced development and completion of the necessary systems to offer integrated HIPAA compliant Medical Grade Network® to the health care community to provide electronic systems required by increasing U.S. public policy mandates to accelerate the movement to secure electronic health records.

In 2003, a minority amount of our revenue was related to our HIPAA business. In 2004, a majority of our revenue was related to our HIPAA business. In 2005, all of our revenues were related to our health care service model.

In 2004, to accelerate our movement into the electronic health record business, we sold our Internet Service Provider ("ISP") customer base effective June 21, 2004 to concentrate on our health care IT solutions model and its Medical Grade Network®.

In 2004, we contracted with the largest healthcare system in Texas to provide physicians with Internet bandwidth and managed security services using our Medical Grade Network®.

In March 2005 we acquired substantially all of the assets and assumed certain ongoing contractual obligations of TEKMedia Communications, Inc., a company that provided traditional IT consulting services, in exchange for 132,000 shares of the Company’s common stock valued at $116,160.

In September 2005 we acquired substantially all of the assets and assumed certain ongoing contractual obligations of Trilliant Corporation, a company that provides assessment, design, vendor selection, procurement and project management for large technology initiatives, particularly in the healthcare arena. The acquisition strengthened Bluegate as a competitor in the technology management industry. The purchase price consisted of $161,033 cash and 258,308 shares of Bluegate's common stock valued at $180,816. The asset sale and purchase agreement provided for additional consideration up to 827,160 common shares depending on the acquired business’ revenue through September 2007 and royalty payments based on sales through September 2007 of certain software acquired. In accordance with the asset sale and purchase agreement, 407,407 shares of Bluegate’s common stock valued at $301,481 was issued in 2006 as additional consideration based upon the acquired business’ revenue calculation after the first year and 419,753 shares of Bluegate’s common stock valued at $33,580 was issued in 2007 as additional consideration based upon the acquired business’ revenue calculation after the second year.

Effective June 28, 2007, we sold 8 shares of Series C Preferred Stock for $100,000 in cash to SAI Corporation, a corporation controlled by Stephen Sperco who is our CEO and a Director. We also granted to SAI Corporation warrants to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. On the same day we sold 40 shares of Series C Preferred Stock for $500,000 in cash to Stephen Sperco. We also granted to Mr. Sperco warrants to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. Each share of Preferred Stock is convertible into 25,000 shares of common stock. Each share of Preferred Stock has 15 times the number of votes its conversion-equivalent number of shares of common stock, or 375,000 votes per share of Preferred Stock. The 48 shares of Preferred Stock will have an aggregate of 18 million votes. The Preferred Stock votes along with the common stock on all matters requiring a vote of shareholders and the Preferred Stock is not redeemable by us. Bluegate’s net tangible book value (deficit) per share was ($0.13) prior to the investment in the preferred stock by Mr. Sperco and SAI Corporation on June 28, 2007. After the $600,000 cash investment and assuming that Mr. Sperco and SAI Corporation converted all of the 48 shares of preferred stock into 1,200,000 shares of common stock and exercised all of the 7,200,000 warrants at $0.17 per share resulting in $1,020,000 proceeds to Bluegate, Bluegate’s net tangible book value (deficit) per share would have been reduced to ($0.01).

As a result of his purchase of Series C Preferred Stock described above, and his previously and subsequently acquired stock, options and warrants, Mr. Sperco beneficially owns 44% of our common stock without taking into account the super voting power of the Preferred Stock, and 62% when taking into account the super voting power of the Preferred Stock. One of the conditions of Mr. Sperco’s purchase of the Preferred Stock was that both he and Dale Geary be appointed as Directors. Continuing as Directors are Manfred Sternberg and William Koehler. We have increased the size of our Board of Directors to consist of five Directors, one of which positions is now vacant.

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.

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

-	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 BUSINESS - CUSTOMERS AND VENDORS

Major Customers. During 2008, our top five customers accounted for 41% of our service revenue and no single customer accounted for more than 12% of service revenue.

Major Vendors. During 2008, our top five vendors accounted for 74% of our purchases and no single vendor accounted for more than 21% of purchases.

EMPLOYEES

We currently have 29 employees of whom 28 are full time employees.

AVAILABLE INFORMATION ABOUT US

The public may read and copy any materials we file with the Securities and Exchange Commission (“SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at (http://www.sec.gov). Our Internet site is www.bluegate.com.

DESCRIPTION OF PROPERTY

We lease approximately 7,290 square feet of office space located at 701 North Post Oak Road, Suite 600, Houston, Texas 77024, for a monthly lease payment of approximately $9,000. The lease expires in November 2013. We believe this space is adequate for our current needs, and that additional space is available to us at a reasonable cost, if needed.

LEGAL PROCEEDINGS

None.

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our stock is traded on the OTCBB and our trading symbol is "BGAT." The following table sets forth the quarterly high and low bid price per share for our common stock. These bid and asked price quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual prices. Our fiscal year ends December 31.

COMMON STOCK PRICE RANGE	2009				2008				2007
	HIGH		LOW		HIGH		LOW		HIGH		LOW
First Quarter	$	0.04	$	0.008	$	0.15	$	0.06	$	1.05	$	0.70
Second Quarter						0.09		0.03		0.92		0.40
Third Quarter						0.15		0.03		0.55		0.08
Fourth Quarter						0.04		0.005		0.24		0.06

COMMON STOCK

On April 24, 2009, we had outstanding 26,033,565 shares of Common Stock, $0.001 par value per share.

On April 24, 2009, the closing bid price of our stock was $0.02 per share.

On April 24, 2009, we had approximately 486 shareholders of record.

One of our record stockholders is a nominee located offshore with record ownership (not beneficial ownership) of approximately 5% of our shares of common stock. Our transfer agent is American Stock Transfer and Trust Company.

We have not paid any cash dividends and we do not expect to declare or pay any cash dividends in the foreseeable future. Payment of any cash dividends will depend upon our future earnings, if any, our financial condition, and other factors as deemed relevant by the Board of Directors.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
PLAN CATEGORY:	(a)		(b)	(c)
Equity compensation plans approved by security holders	-	$	-	-
Equity compensation plans not approved by security holders	9,783,597		0.40	1,867,315	(1)

(1) These shares are the remaining unissued shares under our 2005 Stock and Stock Option Plan (the 2005 Plan)

FINANCIAL STATEMENTS

BLUEGATE CORPORATION

__________

CONSOLIDATED FINANCIAL STATEMENTS

WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

F-1

BLUEGATE CORPORATION
TABLE OF CONTENTS
__________


	PAGE
	____

Report of Independent Registered Public Accounting Firm	F-3

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2008 and 2007	F-4

Consolidated Statements of Operations for the years ended December 31, 2008 and 2007	F-5

Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2008 and 2007	F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007	F-7

Notes to Consolidated Financial Statements	F-8

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Bluegate Corporation

Houston, Texas

We have audited the accompanying consolidated balance sheets of Bluegate Corporation, (“Bluegate”) as of December 31, 2008 and 2007 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the two years then ended. These consolidated financial statements are the responsibility of Bluegate’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bluegate as of December 31, 2008 and 2007 and the consolidated results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that Bluegate will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, Bluegate has negative working capital and suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

MALONE & BAILEY, PC

www.malone-bailey.com

Houston, Texas

April 9, 2009

F-3

BLUEGATE CORPORATION
CONSOLIDATED BALANCE SHEETS


	December 31,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	11,283		$	43,703
Accounts receivable, net		502,631			400,023
Prepaid expenses and other		22,498			23,917
Total current assets		536,412			467,643
Property and equipment, net		44,381			63,525
Intangibles, net		-			6,775
Total assets	$	580,793		$	537,943
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	230,325		$	289,583
Accounts payable to related party		10,750			40,089
Accrued liabilities		139,046			149,221
Notes payable		12,800			12,800
Notes payable to related parties		1,169,079			612,738
Accrued liabilities to related parties		178,655			344,598
Deferred revenue		194,472			153,579
Total current liabilities		1,935,127			1,602,608
Commitments and contingencies - Note 10
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 December 31, 2008 and 2007; $12,500 per share liquidation preference ($600,000 aggregate liquidation preference at December 31, 2008)		-			-
Common stock, $.001 par value, 50,000,000 shares authorized, 26,033,565 and 15,163,565 shares issued and outstanding at December 31, 2008 and 2007, respectively		26,034			15,164
Additional paid-in capital		26,240,785			24,746,778
Accumulated deficit		(27,621,153	)		(25,826,607	)
Total stockholders’ deficit		(1,354,334	)		(1,064,665	)
Total liabilities and stockholders’ deficit	$	580,793		$	537,943

The accompanying notes are an integral

part of these consolidated financial statements.

F-4

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007


	2008			2007
Service revenue	$	4,442,465		$	5,835,075
Cost of services		2,960,169			3,193,096
Gross profit		1,482,296			2,641,979
Selling, general and administrative expenses		796,245			1,717,161
Compensation expense		2,268,113			5,976,232
Loss from operations		(1,582,062	)		(5,051,414	)
Interest expense		(212,484	)		(74,666	)
Net loss		(1,794,546	)		(5,126,080	)
Deemed dividend on preferred stock		-			(600,000	)
Net loss attributable to common shareholders	$	(1,794,546	)	$	(5,726,080	)

Net loss attributable to common shareholders per common share - basic and diluted	$	(0.07	)	$	(0.41	)

Basic and diluted weighted average shares outstanding		24,229,084			13,929,109

The accompanying notes are an integral

part of these consolidated financial statements.

F-5

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

									ADDITIONAL
	COMMON STOCK				PREFERRED STOCK				PAID-IN			ACCUMULATED
	SHARES		CAPITAL		SHARES		CAPITAL		CAPITAL			DEFICIT			TOTAL
Balance at December 31, 2006		12,130,311	$	12,130		-	$	-	$	19,627,159		$	(20,700,527	)	$	(1,061,238	)
Issuance of common stock and warrants for cash		1,400,000		1,400						698,600						700,000
Issuance of common stock for employee compensation		150,000		150						142,350						142,500
Issuance of common stock for outside services		621,773		622						354,903						355,525
Issuance of preferred stock and common stock warrants for cash						48		-		600,000						600,000
Beneficial conversion feature embedded in preferred stock										600,000						600,000
Deemed dividend on preferred stock										(600,000	)					(600,000	)
Common stock options issued for employee services										2,932,147						2,932,147
Employee common stock options re-priced										47,394						47,394
Issuance of common stock for delay in filing a registration statement		191,728		192						98,463						98,655
Issuance of common stock and warrants for:
- accounts payable		130,000		130						39,872						40,002
- services		120,000		120						172,730						172,850
Contingent shares issued for Trilliant acquisition accounted for as compensation		419,753		420						33,160						33,580
Net loss													(5,126,080	)		(5,126,080	)
Balance at December 31, 2007		15,163,565		15,164		48		-		24,746,778			(25,826,607	)		(1,064,665	)
Issuance of common stock and warrants for cash		170,000		170						84,830						85,000
Issuance of common stock to related party for:
- cash		111,111		111						9,889						10,000
- compensation		188,889		189						16,811						17,000
Issuance of common stock for:
- related party debt		3,388,889		3,389						301,611						305,000
- compensation		5,761,111		5,761						512,739						518,500
Issuance of common stock warrants as additional consideration to borrow funds from related party										109,028						109,028
Common stock options issued for employee services										418,681						418,681
Issuance of common stock for options exercised for conversion of related party debt		1,250,000		1,250						40,418						41,668
Net loss													(1,794,546	)		(1,794,546	)
Balance at December 31, 2008		26,033,565	$	26,034		48	$	-	$	26,240,785		$	(27,621,153	)	$	(1,354,334	)

The accompanying notes are an integral

part of these consolidated financial statements.

F-6

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
	2008			2007
Cash flows from operating activities:
Net loss	$	(1,794,546	)	$	(5,126,080	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		49,390			68,741
Common stock issued for outside services		-			355,525
Common stock options issued for employee services		418,681			2,932,147
Employee common stock options re-priced		-			47,394
Common stock issued for delay in filing a registration statement		-			98,655
Common stock warrants issued to borrow funds from related party		109,028			-
Contingent shares issued for Trilliant acquisition accounted for as compensation		-			33,580
Common stock issued for employee compensation		-			142,500
Common stock issued for compensation		535,500			-
Common stock and warrants issued for services		-			172,850
Changes in operating assets and liabilities:
Accounts receivable		(102,608	)		(119,669	)
Prepaid expenses and other current assets		1,419			25,030
Accounts payable and accrued liabilities		(69,433	)		80,364
Accounts payable to related party		(29,339	)		40,089
Accrued liabilities to related party		180,725			360,848
Deferred revenue		40,893			(1,035,658	)
Net cash used in operating activities		(660,290	)		(1,923,684	)

Cash flows from investing activities:
Purchase of property and equipment		(23,470	)		(34,708	)
Net cash used in investing activities		(23,470	)		(34,708	)

Cash flows from financing activities:
Proceeds from related party short term debt		715,000			1,111,427
Payments on related party short term debt		(158,660	)		(620,863	)
Net change in bank line of credit		-			(44,590	)
Proceeds from note payable from individual		-			315,000
Repayment of note payable from individual		-			(315,000	)
Common stock and warrants issued for cash		95,000			700,000
Preferred stock and common stock warrants issued for cash		-			600,000
Net cash provided by financing activities		651,340			1,745,974

Net decrease in cash and cash equivalents		(32,420	)		(212,418	)
Cash and cash equivalents at beginning of period		43,703			256,121
Cash and cash equivalents at end of period	$	11,283		$	43,703

Non Cash Transactions:
Issuance of common stock for conversion of related party accounts payable, accrued expenses and accrued interest	$	305,000		$	-
Issuance of common stock for options exercised for conversion of related party accrued expenses and accrued interest		41,668			-
Deemed dividend from beneficial conversion feature on preferred stock		-			600,000
Issuance of common stock and warrants for conversion of accounts payable		-			40,002
Supplemental information:
Cash paid for interest		148,706			72,226

F-7

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

__________

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bluegate Corporation (the “Company") is a Nevada Corporation that 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 Implementation Project Management and IT and telecommunications consulting through its professional services organization.

The Company was originally incorporated as Solis Communications, Inc. on July 23, 2001 and adopted a name change to Crescent Communications Inc. upon completion of a reverse acquisition of Berens Industries, Inc. In 2004, we changed our name to Bluegate Corporation.

Following is a summary of the Company's significant accounting policies:

SIGNIFICANT ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its 100% owned subsidiary, Trilliant Technology Group, Inc., after elimination of all significant inter-company accounts and transactions.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid short-term investments with an original maturity of three months or less when purchased, to be cash equivalents.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable are amounts due on sales, are unsecured and are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus accounts receivable do not bear interest although a finance charge may be applied to such receivables that are more than thirty days past due. Accounts receivable are periodically evaluated for collectibility based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions. Accounts receivable are not secured. In February 2008, as a result of the transaction described in footnote 7 – notes payable and footnote 9 – stockholders’ deficit, as condition to and as additional consideration for SAI Corporation’s (“SAIC”) agreement to lend funds to the Company, the Company granted SAIC a security interest in its assets as more specifically detailed in the Promissory Note and Security Agreement.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and depreciated on the straight-line method over the estimated useful lives of the various classes of depreciable property as follows:

Furniture and equipment	5-7 years
Telecommunications networks	5 years
Computer equipment	3 years

Expenditures for normal repairs and maintenance are charged to expense as incurred. The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss is included in operations.

F-8

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL

STATEMENTS, CONTINUED

__________

INTANGIBLES

Intangibles are recorded at cost and amortized on the straight-line method over an estimated useful life of three years.

IMPAIRMENT OF LONG-LIVED ASSETS

In the event facts and circumstances indicate the carrying value of a long-lived asset, including associated intangibles, may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required.

INCOME TAXES

The Company uses the liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of temporary differences between the tax basis of assets and liabilities and their financial amounts at year-end. The Company provides a valuation allowance to reduce deferred tax assets to their net realizable value.

STOCK-BASED COMPENSATION

Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation" established financial accounting and reporting standards for stock-based employee compensation plans. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. In January 2006, Bluegate implemented SFAS No. 123R, and accordingly, Bluegate accounts for compensation cost for stock option plans in accordance with SFAS No. 123R.

Bluegate accounts for share based payments to non-employees in accordance with EITF 96-18 “Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

EMBEDDED CONVERSION FEATURES

Bluegate evaluates embedded conversion features within convertible debt and convertible preferred stock under paragraph 12 of SFAS 133 and EITF 00-19 to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under SFAS 133 and EITF 00-19, the instrument is evaluated under EITF 98-5 and EITF 00-27 for consideration of any beneficial conversion feature.

REVENUE RECOGNITION

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured.

Revenue, which includes licensing revenue, is recognized based upon contractually determined monthly service charges to individual customers. Some services are billed in advance and, accordingly, revenues are deferred until the period in which the services are provided. At December 31, 2008 and 2007, deferred service revenue was $194,472 and $153,579, respectively.

LOSS PER SHARE

Basic and diluted net loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during each period. Potentially dilutive options that were outstanding during 2008 and 2007 were not considered in the calculation of diluted earnings per share because the Company's net loss rendered their impact anti-dilutive. Accordingly, basic and diluted losses per share were identical for the years ended December 31, 2008 and 2007.

RECLASSIFICATIONS

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

F-9

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

2. GOING CONCERN CONSIDERATIONS

During 2008 and 2007, the Company was unable to generate cash flows sufficient to support its operations and has been dependent on debt and equity raised from qualified individual investors. The Company experienced negative financial results as follows:

	2008			2007
Net loss attributable to common shareholders	$	(1,794,546	)	$	(5,726,080	)
Negative cash flow from operations		(660,290	)		(1,923,684	)
Negative working capital		(1,398,715	)		(1,134,965	)
Stockholders’ deficit		(1,354,334	)		(1,064,665	)

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 current operations by: (1) raising additional operating cash through the private sale of our preferred and common stock, (2) selling convertible debt and common stock to certain key stockholders and (3) issuing stock and options as compensation to certain employees and vendors in lieu of cash payments.

·	Raising capital through additional sale of our common stock and/or debt Securities

·	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.

F-10

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

3. ACQUISITION OF TRILLIANT CORPORATION ASSETS

On September 15, 2005, Bluegate acquired substantially all of the assets and assumed certain ongoing contractual obligations of Trilliant Corporation, a company that provides assessment, design, vendor selection, procurement and project management for large technology initiatives, particularly in the healthcare arena.

Effective September 30, 2007, in accordance with the asset sale and purchase agreement, 419,753 shares of Bluegate’s common stock valued at $33,580 was issued as additional consideration based upon the acquired business’ revenue after the second year. According to EITF 95-8, “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination,” whether the contingent shares are accounted for as an adjustment to the purchase price or as compensation for services depends on the agreement. As a result of this transaction, $33,580 was recorded as an expense.

4. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consists of the following at December 31, 2008 and 2007:

	2008			2007
Accounts receivable	$	520,493		$	462,003
Less allowance for bad debts		(17,862	)		(61,980	)
	$	502,631		$	400,023

5. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following at December 31, 2008 and 2007:

	2008			2007
Computer equipment	$	197,437		$	176,124
Software		193,690			191,534
Office furniture		60,734			60,734
		451,861			428,392
Less accumulated depreciation		(407,480	)		(364,867	)
	$	44,381		$	63,525

Depreciation expense for the years ended December 31, 2008 and 2007 was $42,613 and $63,217, respectively and is presented in the accompanying consolidated statements of operations as cost of services.

6. INTANGIBLE ASSETS, NET

Intangible assets, net consists of the following at December 31, 2008 and 2007:

	2008			2007
Customer list	$	28,702		$	28,702
LTMS & eCast software		32,350			32,350
		61,052			61,052
Less accumulated amortization		(61,052	)		(54,277	)
	$	-		$	6,775

Amortization expense for the years ended December 31, 2008 and 2007 was $6,775 and $5,524, respectively and is presented in the accompanying consolidated statements of operations as cost of services.

F-11

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

7. NOTES PAYABLE

Notes payable at December 31, 2008 and 2007 are summarized below:	2008		2007

Unsecured notes payable: 10% note payable due upon demand	$	12,800	$	12,800
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 totaling $56,837. See footnote 13, Subsequent Events. Note payable to SAI Corporation due on demand	$	1,100,000	$	500,000

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"), President and COO, for Bluegate to borrow up to $500,000 from each of them. As of December 31, 2008, the interest rates on the underlying credit cards pertaining to funds borrowed from MS and WK were 17.24% and 17.23%, respectively. During the year ended December 31, 2008, we made payments of $43,659 on these related party notes.
Notes payable to William Koehler due on demand at an interest rate of 17.23%		34,628		36,569
Notes payable to Manfred Sternberg due on demand at an interest rate of 17.24%		34,451		76,169

	$	1,169,079	$	612,738

8.INCOME TAXES

The composition of deferred tax assets at December 31, 2008 and 2007 were as follows:

Deferred tax assets	2008			2007
Benefit from carryforward of net operating loss	$	2,135,000		$	1,980,000
Less valuation allowance		(2,135,000	)		(1,980,000	)
Net deferred tax asset	$	-		$	-

The difference between the income tax benefit in the accompanying statement of operations and the amount that would result if the U.S. Federal statutory rate of 34% were applied to pre-tax loss for the years ended December 31, 2008 and 2007 is attributable to the valuation allowance.

At December 31, 2008, for federal income tax and alternative minimum tax reporting purposes, the Company has $6,280,000 in unused net operating losses available for carryforward to future years which will expire in various years through 2028. The majority of the unused net operating loss carryforward is limited to an annual amount of approximately $270,000 due to the change in control on June 28, 2007 (see below footnote 9 - Series C Preferred Stock).

9. STOCKHOLDERS’ DEFICIT

SERIES A PREFERRED STOCK

During 2001, Bluegate issued 110 shares of Series A voting convertible non-redeemable preferred stock with a par value of $0.001 per share and a liquidation value of $5,000 per share. In February 2006, the preferred stock was converted into 1,418,681 common shares, leaving no shares outstanding.

F-12

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

SERIES B PREFERRED STOCK

During 2001, Bluegate authorized 100 shares of Series B convertible non-redeemable preferred stock with a par value of $0.001 per share and a liquidation value of $200 per share. On October 11, 2002, Bluegate issued 23 shares of such stock to retire certain liabilities totaling $72,768 and to obtain indemnification from certain contingencies assumed in the reverse acquisition of Berens Industries, Inc. All Series B Preferred Stock was converted to common stock in 2003, leaving no shares outstanding.

SERIES C PREFERRED STOCK

Based upon the $600,000 investment in Series C preferred stock, we allocated the relative fair value of $100,000 to preferred stock and $500,000 to the warrants.

Bluegate analyzed the conversion feature associated with the preferred stock for derivative accounting consideration under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities and EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock. Bluegate determined the conversion feature met the criteria for classification in equity and did not require derivative treatment under SFAS 133 and EITF 00-19.

In accordance with EITF 00-27, Application of Issue No. 98-5 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, which provides guidance on the calculation of a beneficial conversion feature on a convertible instrument, Bluegate has determined that the Series C shares issued had an aggregate beneficial conversion feature of $500,000 as of the date of issuance, resulting in a total discount of $600,000. Bluegate recorded this beneficial conversion feature as a deemed dividend upon issuance.

The warrants issued in this transaction were subject to a registration rights agreement which required Bluegate to register the underlying shares by September 28, 2007 or pay liquidated damages of 1.5% of the purchase price of the investment each month the shares were not registered. We filed with the Securities and Exchange Commission a Registration Statement which was effective as of August 30, 2007 with respect to these securities. There is no liability related to the registration rights agreements.

As a result of this transaction, net operating losses accumulated up through the change in control are limited by Internal Revenue Code Section 382 due to the change in control (see above footnote 8 – Income Taxes).

STOCK OPTION PLANS

The Company had adopted the 2002 Stock and Stock Option Plan under which incentive stock options for up to 450,000 common shares may be awarded to officers, directors and key employees. The plan was designed to attract and reward key executive personnel. As of December 31, 2008, Bluegate has granted all 450,000 options and the 2002 stock plan is not active.

Stock options granted pursuant to the 2002 plan expire as determined by the board of directors. All of the options granted were at an option price equal to the fair market value of the common stock at the date of grant.

F-13

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

In 2005 the Company adopted the 2005 Stock and Stock Option Plan. The purpose of the 2005 plan is to further our interests, our Subsidiaries and our stockholders by providing incentives in the form of stock options to key employees, consultants, directors and others who contribute materially to our success and profitability. The grants recognize and reward outstanding individual performances and contributions and will give such persons a proprietary interest in us, thus enhancing their personal interest in our continued success and progress. The 2005 Plan also assists us and our subsidiaries in attracting and retaining key employees and Directors and is administered by the Board of Directors. The Board of Directors has the exclusive power to select the participants, to establish the terms of the stock and options granted to each participant, provided that all options granted shall be granted at an exercise price equal to at least 85% of the fair market value of the common stock covered by the option on the grant date and to make all determinations necessary or advisable under the 2005 plan. The maximum aggregate number of shares of common stock that may be granted or optioned and sold under the plan is 3,000,000 shares. As of December 31, 2008, 1,132,685 shares of common stock have been granted.

During 2008 and 2007, 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.

F-14

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

SUMMARY OF STOCK OPTIONS

Non-statutory Stock Options			Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at January 1, 2007			10,660,613		$	0.88
Granted			1,232,000			0.41
Forfeited			(797,749		)	0.87
Outstanding at January 1, 2008			11,094,864			0.42
Granted			125,000			0.25
Forfeited			(186,267		)	1.72
Exercised			(1,250,000		)	0.03
Outstanding at December 31, 2008			9,783,597			0.40		2.38

Options exercisable at December 31, 2008			9,779,435			0.40		2.38
The weighted average grant date fair value of options granted during the years 2008 and 2007 was $0.10 and $0.37, respectively. There was no aggregate intrinsic value of options outstanding or exercisable at December 31, 2008.
Options Outstanding	Options Currently Exercisable	Remaining Contractual Term (Years)		Exercise Price ($)			Vesting Date

425,000	425,000	1		0.34 - 0.50			February 2005
50,000	50,000	1		0.34			March 2005
50,000	50,000	1		0.34			April 2005
50,000	50,000	1		0.34			May 2005
200,000	200,000	1 - 2		0.34			June 2005
130,417	130,417	1 - 2		0.34 - 1.50			July 2005
60,417	60,417	1 - 2		0.34			August 2005
120,834	120,834	1 - 2		0.34			September 2005
435,417	435,417	1 - 2		0.34 - 1.00			October 2005
85,417	85,417	1 - 2		0.34 - 1.00			November 2005
111,917	111,917	1 - 2		0.34 - 1.00			December 2005
85,417	85,417	1 - 2		0.34 - 1.00			January 2006
85,417	85,417	1 - 2		0.34 - 1.00			February 2006
135,417	135,417	1 - 2		0.34 - 1.00			March 2006
85,417	85,417	1 - 2		0.34 - 1.00			April 2006
90,417	90,417	1 - 3		0.34 - 1.00			May 2006
120,834	120,834	1 - 3		0.34			June 2006
145,834	145,834	1 - 3		0.34 - 0.75			July 2006
995,834	995,834	1 - 3		0.34 - 0.62			August 2006
755,100	755,100	1 - 3		0.34 - 0.80			September 2006
190,417	190,417	1 - 3		0.34 - 0.80			October 2006
1,640,417	1,640,417	1 - 3		0.34 - 0.80			November 2006
240,417	240,417	1 - 3		0.34 - 0.80			December 2006
292,500	292,500	1 - 3		0.34 - 0.80			January 2007
388,750	388,750	1 - 4		0.34 - 0.80			February 2007
513,750	513,750	1 - 4		0.34 - 0.80			March 2007
363,750	363,750	1 - 4		0.34 - 0.80			April 2007
257,917	257,917	1 - 4		0.34 - 0.80			May 2007
322,909	322,909	1 - 4		0.34 - 0.80			June 2007
143,333	143,333	1 - 4		0.34 - 0.80			July 2007
131,242	131,242	1 - 4		0.34 - 0.74			August 2007
60,833	60,833	2 - 4		0.19 - 0.74			September 2007
46,666	46,666	2 - 4		0.34			October 2007
47,083	47,083	2 - 4		0.25 - 0.34			November 2007
589,083	589,083	2 - 4		0.17 - 0.34			December 2007
50,833	50,833	2 - 4		0.25 - 0.34			January 2008
89,583	89,583	2 - 4		0.25 - 0.34			February 2008
39,583	39,583	2 - 4		0.25 - 0.34			March 2008
39,583	39,583	2 - 4		0.25 - 0.34			April 2008
13,750	13,750	2 - 4		0.25 - 0.34			May 2008
13,750	13,750	2 - 4		0.25 - 0.34			June 2008
11,250	11,250	2 - 4		0.25 - 0.34			July 2008
11,258	11,258	2 - 4		0.25 - 0.34			August 2008
2,917	2,917	3 - 4		0.25 - 0.34			September 2008
2,917	2,917	3 - 4		0.25 - 0.34			October 2008
27,917	27,917	3 - 4		0.03 - 0.34			November 2008
27,921	27,921	3 - 4		0.03 - 0.35			December 2008
417		4		0.25			January 2009
417		4		0.25			February 2009
417		4		0.25			March 2009
417		4		0.25			April 2009
417		4		0.25			May 2009
417		4		0.25			June 2009
417		4		0.25			July 2009
417		4		0.25			August 2009
417		4		0.25			September 2009
409		4		0.25			October 2009
9,783,597	9,779,435

F-15

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

SUMMARY OF STOCK WARRANTS

		NUMBER OF SHARES UNDER WARRANTS		EXERCISE PRICES ($)		WEIGHTED AVERAGE EXERCISE PRICE ($)		Weighted Average Remaining Contractual Term (Years)
Outstanding at January 1, 2007		9,749,220		0.50 - 5.00		0.83
Granted		8,925,000		0.17 - 1.00		0.28
Forfeited		(116,000)		0.50 - 2.00		0.71
Outstanding at January 1, 2008		18,558,220		0.50 - 5.00		0.54
Granted		1,170,000		0.03 - 1.00		0.08
Forfeited		(2,206,670)		0.20 - 5.00		1.10
Outstanding and Exercisable at December 31, 2008		17,521,550				0.30		3.09

The weighted average grant date fair value of warrants granted during the years 2008 and 2007 was $0.11 and $0.54, respectively. There was no aggregate intrinsic value of the warrants at December 31, 2008.
Warrant Expiration Summary
NUMBER OF COMMON STOCK EQUIVALENTS	CURRENTLY EXERCISABLE		EXPIRATION DATE		REMAINING CONTACTUAL LIFE (YEARS)		EXERCISE PRICE ($)

83,750	83,750		March 2009		1		1.00
350,000	350,000		October 2010		2		0.50
826,667	826,667		October 2010		2		0.03
20,000	20,000		December 2010		2		1.00
100,000	100,000		January 2011		3		0.17
40,000	40,000		January 2011		3		1.00
193,333	193,333		February 2011		3		0.75
96,667	96,667		February 2011		3		1.00
80,000	80,000		March 2011		3		0.75
40,000	40,000		March 2011		3		1.00
349,866	349,866		May 2011		3		0.03
160,000	160,000		May 2011		3		0.75
80,000	80,000		May 2011		3		1.00
216,667	216,667		June 2011		3		0.75
108,333	108,333		June 2011		3		1.00
120,000	120,000		July 2011		3		0.75
60,000	60,000		July 2011		3		1.00
358,267	358,267		July 2011		3		0.03
270,000	270,000		August 2011		3		0.75
135,000	135,000		August 2011		3		1.00
210,000	210,000		August 2011		3		0.17
420,000	420,000		September 2011		3		0.75
210,000	210,000		September 2011		3		1.00
60,000	60,000		September 2011		3		0.17
340,000	340,000		October 2011		3		0.75
170,000	170,000		October 2011		3		1.00
120,000	120,000		October 2011		3		0.17
1,174,000	1,174,000		November 2011		3		0.75
594,000	594,000		November 2011		3		1.00
300,000	300,000		November 2011		3		0.03
120,000	120,000		December 2011		3		0.75
60,000	60,000		December 2011		3		1.00
290,000	290,000		February 2012		4		0.75
145,000	145,000		February 2012		4		1.00
300,000	300,000		February 2012		4		0.03
200,000	200,000		March 2012		4		0.75
100,000	100,000		March 2012		4		1.00
300,000	300,000		March 2012		4		0.03
60,000	60,000		May 2012		4		0.75
30,000	30,000		May 2012		4		1.00
6,000,000	6,000,000		June 2012		4		0.03
1,500,000	1,500,000		July 2012		4		0.03
130,000	130,000		January 2013		5		0.17
1,000,000	1,000,000		February 2013		5		0.03

17,521,550	17,521,550

F-16

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

EQUITY TRANSACTIONS

During 2008, Bluegate completed the following equity transactions:

COMMON STOCK:

Issuance of common stock and warrants for cash:

1) In January 2008, we issued 170,000 shares of common stock, warrants for 130,000 shares of our common stock at an exercise price of $0.17 per share, warrants for 40,000 shares of our common stock at an exercise price of $1.00 per share for $85,000 in connection with a private placement of our securities. The relative fair value of the stock and warrants in these transactions were $70,223 and $14,777, respectively. As part of the $85,000 consideration, 510,000 previously issued warrants with exercise prices ranging from $0.75 to $1.25 were reduced to $0.17. The expiration date for 100,000 previously issued warrants was extended to January 22, 2011. All other terms of the warrant agreements remained the same.

Issuance of common stock for conversion of related party accounts payable, accrued liabilities and interest:

(2) On February 14, 2008, we finalized and consummated a transaction with a deemed effective date of February 1, 2008 whereby we issued 9,150,000 shares of stock for the conversion of related party debts of directors totaling $305,000. The conversion and purchase price per share was $0.0333334. The excess of the fair value of the stock over the debt converted and shares purchased totaled $518,500 and was recorded as compensation expense. The following individuals or related entities converted debt and received the following shares: (i) Stephen Sperco, Director and CEO, received 3,000,000 shares; (ii) SAI Corporation, an entity controlled by Stephen Sperco, received 1,500,000 shares; (iii) Manfred Sternberg, Director and Chief Strategy Officer, received 2,400,000 shares; (iv) William Koehler, Director and President, received 2,100,000 shares; and, (v) Dale Geary, Director, received, 150,000 shares.

Issuance of common stock to related party for cash:

(3) On February 14, 2008, we finalized and consummated a transaction with a deemed effective date of February 1, 2008 whereby we issued 300,000 shares of stock to two managers for $10,000. The purchase price per share was $0.0333334. The excess of the fair value of the stock over the shares purchased totaled $17,000 and was recorded as compensation expense. The following members of management purchased the following shares: Charles Leibold, CFO, purchased 150,000 shares; and, Larry Walker, President of Trilliant Technology Group, Inc., our 100% owned subsidiary, purchased 150,000 shares.

As a result of the February 14, 2008 transaction described in (2) and (3) above: (i) certain adjustment provisions in a previous convertible note agreements and warrant agreements issued in September 2005 and subsequent, were triggered and pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 1,534,800 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share; and, (ii) certain adjustment provisions in previous warrant agreements issued in June and July 2007, were triggered and pursuant to the adjustment provisions, the exercise price of previously issued warrants to purchase 7,500,000 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share.

Issuance of common stock warrants as additional consideration to borrow funds from related party:

(4) As disclosed in the above footnote 7, Notes Payable, 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 and, as of December 31, 2007 the Company had borrowed $500,000 from SAIC. On February 28, 2008, the line of credit agreement 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 (i)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; (ii) reduced the exercise price on 2,200,000 existing warrants and options issued to SAIC and Stephen Sperco, and their assigns, from the current per share exercise prices of $0.17, $0.34, $0.75 and $1.00 to $0.0333334 per share; and (iii) granted 1,000,000 new warrants to SAIC with an exercise price of $0.0333334 per share that expire February 28, 2013. The fair value of the 1,000,000 warrants was $109,028 on the date of issuance. Because the warrants were granted to a related party and the exercise price on the grant date was below the market price of our stock, we expensed $109,028 in February 2008 related to this transaction.

Issuance of common stock for options exercised for conversion of related party debt:

(5) In October 2008, we issued 1,150,000 unrestricted shares and 100,000 restricted shares of common stock to Stephen Sperco, our CEO as a result of his exercise of stock options on October 17, 2008. The Company satisfied related party accrued expenses and accrued interest owed to Mr. Sperco amounting to $38,334 and $3,334, respectively upon the exercise of these stock options.

F-17

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

Stock options issued for services:

(6) During the year ended December 31, 2008, Bluegate expensed $412,382 related to previously issued stock options that vested during the period.

(7) The following table summarizes stock options issued to employees during the year ended December 31, 2008:



	Exercise		Fair		Expiration	Vesting	2008
Options	Price		Value		Date	Period	Expense
15,000	$	0.25	$	1,811	1/2/2013	Through 6/08	$	1,811
3,332		0.25		280	1/15/2013	Through 4/08		280
5,000		0.25		465	1/21/2013	Through 12/08		465
50,000		0.25		3,743	2/1/2011	Immediately		3,743
73,332			$	6,299			$	6,299

As of December 31, 2008, the company has outstanding: (i) 26,033,565 shares of common stock; (ii) 17,521,550 warrants; (iii) 9,783,597 options; and, (iv) preferred stock that are convertible into 1,200,000 shares of common stock, resulting in on a fully diluted basis, 54,538,712 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 4,538,712 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).

During 2008, 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.

During 2007, Bluegate completed the following equity transactions:

COMMON STOCK:

Issuance of common stock and warrants for cash:

(1) During the quarter ended March 31, 2007, we issued 800,000 shares of common stock, warrants for 800,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 400,000 shares of our common stock at an exercise price of $1.00 per share, for $400,000 in connection with a private placement of our securities. The relative fair value of the stock and warrants in these transactions were $108,576 and $291,424, respectively. In February 2008, as a result of the transaction described above, the exercise prices of $0.75 and $1.00 related to 400,000 and 200,000 warrants issued during this period, respectively, were reduced to $0.0333334.

(2) In July 2007, we issued 600,000 shares of common stock and warrants for 1,500,000 shares of our common stock at an exercise price of $0.17 per share for $300,000 in connection with a private sale of our securities to two officers of Bluegate, Manfred Sternberg, Chief Strategy Officer and William Koehler, President and COO and one other investor. The fair value of the warrants was $553,805 on the date of issuance. Because the warrants were granted to related parties and the exercise price on the grant date was below the market price of our stock, we expensed $553,805 in July 2007 related to these transactions. In February 2008, as a result of the transaction described above, certain adjustment provisions in these warrant agreements were triggered. Pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 1,500,000 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share.

(3) In September 2007, as a result of the preferred stock transaction described above, certain adjustment provisions in Bluegate’s previous convertible note agreements and warrant agreements issued in September 2005 and subsequently, were triggered. Pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 1,534,800 shares of our common stock at $0.50 per share was reduced to $0.17 per share and further reduced in February 2008 to $0.0333334 as a result of the transaction described above.

F-18

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

Issuance of common stock for employee compensation:

(4) In January 2007, we issued 150,000 shares of common stock to an employee for compensation. The common stock had a market value of $142,500 based on the closing price of the stock on the date of grant. We expensed $142,500 in quarter ending March 31, 2007 related to this transaction.

Issuance of common stock for outside services:

(5) In January 2007, we issued 300,000 shares of common stock to a consultant for services rendered. The common stock had a market value of $225,000 based on the closing price of the stock on the date of grant. We expensed $225,000 in the quarter ending March 31, 2007 related to this transaction.

(6) In February and March 2007, we issued 21,773 shares of common stock valued at $19,525 based on the closing price of the stock on the date of grant as payment to a consultant and two vendors for services rendered. We expensed $19,525 in the quarter ending March 31, 2007 related to this transaction.

(7) In March 2007, we issued 100,000 shares of common stock to a consultant for services rendered. The common stock had a market value of $85,000 based on the closing price of the stock on the date of grant. We expensed $85,000 in quarter ending March 31, 2007 related to this transaction.

(8) In December 2007, we issued 200,000 shares of common stock to consultants for services rendered. The common stock had a market value of $26,000 based on the closing price of the stock on the date of grant. We expensed $26,000 in 2007 related to this transaction.

Issuance of common stock for delay in filing a registration statement:

(9) The warrants issued in the transactions recorded in the period January 1, 2006 through June 30, 2006 were subject to registration rights agreements which required Bluegate to register the underlying shares by November 30, 2006 or pay liquidated damages of 1.5% of the purchase price of the investment each month the shares were not registered. In May 2007, we paid liquidated damages of $29,250 by issuing 36,585 restricted shares of common stock covering the period from December 1, 2006 through May 31, 2007. In August 2007, we paid liquidated damages of $4,875 by issuing 10,031 restricted shares of common stock covering the period from June 1, 2006 through August 31, 2007. The amount of liquidated damages totaling $34,125 was recorded as compensation expense.

(10) The warrants issued in the transactions recorded in the period from July 1, 2006 through March 31, 2007 were subject to a registration rights agreement which required Bluegate to register the underlying shares by June 30, 2007 or pay liquidated damages of 1.5% of the purchase price of the investment each month the shares were not registered. In August 2007, we paid liquidated damages of $64,530 by issuing 145,112 restricted shares of common stock covering the period from July 1, 2006 through August 31, 2007. Among those investors were four affiliates who received the following amounts of stock as liquidated damages: 13,500 shares to SAI Corporation; 6,750 shares to Stephen Sperco; 7,493 shares to Manfred Sternberg; 6,750 shares to William Koehler. The liquidated damages of $64,530 were recorded as compensation expense.

We filed with the Securities and Exchange Commission a Registration Statement which was effective as of August 30, 2007 with respect to these securities. As of September 30, 2007 there is no liability related to the registration rights agreements.

Issuance of common stock and warrants for services and accounts payable:

(11) In February 2007, we issued 90,000 shares of our common stock, warrants to purchase 90,000 shares of our common stock at an exercise price of $0.75 per share and warrants to purchase 45,000 shares of our common stock at an exercise price of $1.00 per share. The fair value of the shares and warrants issued was $146,145 based upon the closing price of the stock on the date of grant and the Black-Scholes valuation of the warrants. $15,000 of common stock and warrants was issued to settle prior year accounts payable and $131,145 was expensed in the current year. The warrants vest immediately and expire in February 2012.

(12) In May 2007, we issued 60,000 shares of our common stock, warrants to purchase 60,000 shares of our common stock at an exercise price of $0.75 per share and warrants to purchase 30,000 shares of our common stock at an exercise price of $1.00 per share. The fair value of the shares and warrants issued was $41,705 based upon the closing price of the stock on the date of grant and the Black-Scholes valuation of the warrants. The warrants vest immediately and expire in May 2012.

(13) In September 2007, we issued 100,000 shares of our common stock to a consultant to settle a prior year accounts payable. The common stock had a market value of $25,002 based on the closing price of the stock on the date of grant.

Contingent shares issued for Trilliant acquisition:

(14) Effective September 30, 2007, we recorded the issuance of 419,753 shares of common stock valued at $33,580 to Trilliant Corporation in accordance with the asset sale and purchase agreement dated September 15, 2005, pertaining to the acquired business’ revenue after the second year. As a result of this transaction, $33,580 was recorded as an expense.

F-19

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

__________

Stock options issued for services:

(15) During the year ended December 31, 2007, Bluegate expensed $1,954,758 related to previously issued stock options that vested during the period.

(16) The following table summarizes stock options issued to employees during the year ended December 31, 2007:

		Exercise			Fair		Expiration	Vesting	2007
Options		Price			Value		Date	Period	Expense
	50,000	$	0.80	(a)	$	35,858	1/15/2012	Through 12/08	$	17,928
	75,000		0.75	(a)		50,426	2/2/2012	Through 1/08		46,222
	100,000		0.75	(a)		67,234	2/5/2012	Immediately		67,234
	50,000		0.86	(a)		38,548	2/19/2012	Immediately		38,548
	50,000		0.82	(a)		36,755	3/19/2012	Immediately		36,755
	50,000		0.80	(a)		35,858	4/16/2012	Through 1/08		32,274
	10,000		0.50	(a)		4,482	5/15/2012	Immediately		4,482
	150,000		0.50			67,234	6/25/2012	Immediately		67,234
	25,000		0.50	(a)		11,206	6/29/2012	Immediately		11,206
	10,000		0.39	(a)		3,496	7/15/2012	Immediately		3,496
	10,000		0.19			1,703	9/17/2012	Immediately		1,703
	5,000		0.25			837	9/24/2012	Through 12/07		837
	10,000		0.25			1,208	11/26/2012	Through 10/09		100
	37,000		0.25			4,125	12/14/2012	Immediately		4,125
	100,000		0.17	(b)		15,240	12/31/2012	Immediately		15,240
	100,000		0.17			15,240	12/31/2012	Immediately		15,240
	100,000		0.17			15,240	12/31/2012	Immediately		15,240
	100,000		0.17			15,240	12/31/2012	Immediately		15,240
	100,000		0.17			15,240	12/31/2012	Immediately		15,240
	100,000		0.17			15,240	12/31/2012	Immediately		15,240
	1,232,000				$	450,410			$	423,584

(a) In December 2007, the exercise price of these common stock options was reduced to $0.34.

(b) In February 2008, the exercise price of 100,000 options issued to Stephen Sperco was reduced to $0.0333334.

Employee stock options repriced:

(17) In December 2007, 8,601,400 previously issued common stock options to certain employees with exercise prices ranging from $0.39 to $6.00 were reduced to $0.34. As a result of this transaction, $47,394 was recorded as compensation expense.

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 of 202%; 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.

10. COMMITMENTS AND CONTINGENCIES

Lease Commitment

The Company operates from leased office space under an operating lease that expires in November 2013 however; the Company has the option to terminate the lease on May 1, 2011 upon giving appropriate notice. The lease includes provisions for increases to rental payments should certain costs of the landlord increase. Future base annual lease payments due under the lease are as follows:

Year	Payments
2009 through 2012	$ 105,705
2013	96,896

Rent expense incurred under operating leases for years ended December 31, 2008 and 2007 was $105,705. During the years ended December 31, 2008 and 2007, the Company received sublease income of -0- and $3,000, respectively.

F-20

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

Contingencies

The Company from time to time is involved in actions or disputes by third parties arising in the ordinary course of business. In the opinion of management, no pending or known threatened claims or actions against the Company are expected to have a material adverse effect on Bluegate's consolidated financial position, results of operations or cash flows. With respect to such matters, management believes that it has adequate legal defenses that can be asserted and Bluegate intends to defend any pending or known threatened claims or actions vigorously; however, the Company cannot predict with certainty and there can be no assurance as to the ultimate outcome or effect of any claims or disputes.

A dispute arose during 2008 over the potential accrual of compensation for a combined amount of $151,998 as of December 31, 2008. Bluegate assessed the likelihood that this dispute would result in a future loss to the company under FAS 5 and determined that the likelihood these salaries would be paid in the future to be reasonably possible, or more than remote but less than likely. Accordingly, under FAS 5 Bluegate has not accrued the amount of disputed salaries as of December 31, 2008.

11. RELATED PARTY TRANSACTIONS

During the years ended December 31, 2008 and 2007, the Company engaged in related party transactions as follows:

Secured note payable: During 2007, the Company entered into a line of credit agreement with SAI Corporation ("SAIC"), a corporation controlled by our CEO, Stephen Sperco (“SS”), 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 SS, 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) STG all past due amounts totaling $56,837. As of December 31, 2008 and 2007, the Company had borrowed $1,100,000 and $500,000, respectively. See footnote 13, Subsequent Events. The note is due upon demand and is described in footnote 7, notes payable. During the years ended December 31, 2008 and 2007, the Company incurred interest expense on the related party note payable debt of $116,712 and $5,367, respectively. At December 31, 2008 $14,014 is payable to SAIC and included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet.

Unsecured notes payable: During 2006, the Company entered into a line of credit agreement with Manfred Sternberg ("MS"), Chief Strategy Officer and William Koehler ("WK"), President and COO, for Bluegate to borrow up to $500,000 from each of them. As of December 31, 2008, the Company had borrowed $34,451 and $34,628 from MS and WK, respectively. As of December 31, 2007, the Company had borrowed $76,169 and $36,569 from MS and WK, respectively. The notes are due upon demand and are described in footnote 7, notes payable. During the years ended December 31, 2008 and 2007, the Company incurred interest expense on the related party notes payable debt of $11,067 and $34,335, respectively. At December 31, 2008 accrued interest of $2,970 and $4,033 is payable to MS and WK, respectively and included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet.

Accounts payable to related party: SS is the founder and President of STG. STG is a privately held consulting firm that focuses in the areas of Telecommunications and Information Technology systems. STG provides independent, third party consulting, planning, and facilities management services. During the years ended December 31, 2008 and 2007 the Company incurred $225,482 and $266,483, respectively of consulting services from STG. At December 31, 2008 and 2007, $10,750 and $40,089, respectively are payable to STG and included under the caption accounts payable to related party on the balance sheet. During the years ended December 31, 2008 and 2007, the Company incurred interest expense on the related party accounts payable debt of $1,191 and $2,246, respectively.

F-21

BLUEGATE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

As of December 31, 2008, $71,667 of fees accrued to Board of Director members MS - $20,000; WK - $20,000; SS - $15,000 and Dale Geary (“DG”) - $16,667 are included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet. As of December 31, 2007, $31,667 of fees accrued to Board of Director members MS - $10,000; WK - $10,000; SS - $5,000 and DG - $6,667 are included under the caption accrued liabilities to related parties totaling $344,598 on the balance sheet. As of December 31, 2008, $18,000 of accrued vehicle allowances to MS - $6,000; WK - $6,000 and SS - $6,000 are included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet.

Office space: In May 2006 (commencement of the current lease agreement) there was an agreement that Manfred Sternberg & Associates may occupy space and use the services of our offices for the term that the Company holds a lease on the property.

12. MAJOR CUSTOMERS AND MAJOR VENDORS

Major Customers. During 2008, our top five customers accounted for 41% of our service revenue and no single customer accounted for more than 12% of service revenue.

Major Vendors. During 2008, our top five vendors accounted for 74% of our purchases and no single vendor accounted for more than 21% of purchases.

13. SUBSEQUENT EVENTS

(1)

As disclosed in footnote 7, Notes Payable, 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. 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. 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. 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.

(2)

F-22

FINANCIAL STATEMENTS

BLUEGATE CORPORATION

__________

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2009 AND DECEMBER 31, 2008 AND FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

TABLE OF CONTENTS





Unaudited Consolidated Financial Statements	F-1

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

Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008	F-2

Consolidated Statement of Stockholders’ Deficit for the three months ended March 31, 2009	F-3

Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008	F-4

Notes to Consolidated Financial Statements	F-5

BLUEGATE CORPORATION
CONSOLIDATED BALANCE SHEETS
UNAUDITED


	March 31,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	79,448		$	11,283
Accounts receivable, net		484,581			502,631
Prepaid expenses and other		19,197			22,498
Total current assets		583,226			536,412
Property and equipment, net		35,471			44,381
Total assets	$	618,697		$	580,793
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	246,535		$	230,325
Accounts payable to related party		8,975			10,750
Accrued liabilities		57,031			139,046
Notes payable		12,800			12,800
Notes payable to related parties		1,369,079			1,169,079
Accrued liabilities to related parties		132,606			178,655
Deferred revenue		194,709			194,472
Derivative liabilities		175,000			-
Total current liabilities		2,196,735			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 March 31, 2009 and December 31, 2008; $12,500 per share liquidation preference ($600,000 aggregate liquidation preference at March 31, 2009)		-			-
Common stock, $.001 par value, 50,000,000 shares authorized, 26,033,565 shares issued and outstanding at March 31, 2009 and December 31, 2008		26,034			26,034
Additional paid-in capital		21,642,704			26,240,785
Accumulated deficit		(23,246,776	)		(27,621,153	)
Total stockholders’ deficit		(1,578,038	)		(1,354,334	)
Total liabilities and stockholders’ deficit	$	618,697		$	580,793

See accompanying notes to consolidated financial statements

F-1

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2009 AND 2008
UNAUDITED


	2009			2008
Service revenue	$	1,013,955		$	1,042,527
Cost of services		620,814			737,847
Gross profit		393,141			304,680
Selling, general and administrative expenses		145,370			260,217
Compensation expense		252,176			1,106,191
Loss from operations		(4,405	)		(1,061,728	)
Interest expense		(67,650	)		(27,320	)
Other income		21,432			2,228
Loss on derivative financial instruments		(91,000	)		-
Net loss	$	(141,623	)	$	(1,086,820	)

Net loss per common share - basic and diluted	$	(0.00	)	$	(0.05	)

Basic and diluted weighted average shares outstanding		26,033,565			21,523,235

See accompanying notes to consolidated financial statements

F-2

BLUEGATE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 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										1,919						1,919
Net loss													(141,623	)		(141,623	)
Balance at March 31, 2009		26,033,565	$	26,034		48	$	-	$	21,642,704		$	(23,246,776	)	$	(1,578,038	)

See accompanying notes to consolidated financial statements

F-3

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2009 AND 2008
UNAUDITED
	2009			2008
Cash flows from operating activities:
Net loss	$	(141,623	)	$	(1,086,820	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,910			13,668
Common stock options issued for employee services		1,919			147,206
Common stock warrants issued to borrow funds from related party		-			109,028
Common stock issued for compensation		-			535,500
Derivative loss		91,000			-
Amortization of debt issuance cost		20,000			-
Changes in operating assets and liabilities:
Accounts receivable		18,050			80,108
Prepaid expenses and other current assets		3,301			3,612
Accounts payable and accrued liabilities		(65,805	)		(155,752	)
Accounts payable to related party		(1,775	)		3,521
Accrued liabilities to related parties		(46,049	)		87,559
Deferred revenue		237			12,422
Net cash used in operating activities		(111,835	)		(249,948	)

Cash flows from investing activities:
Purchase of property and equipment		-			(9,370	)
Net cash used in investing activities		-			(9,370	)

Cash flows from financing activities:
Proceeds from related party short term debt		180,000			200,000
Payments on related party short term debt		-			(39,602	)
Common stock and warrants issued for cash		-			95,000
Net cash provided by financing activities		180,000			255,398

Net increase (decrease) in cash and cash equivalents		68,165			(3,920	)
Cash and cash equivalents at beginning of period		11,283			43,703
Cash and cash equivalents at end of period	$	79,448		$	39,783

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		67,650			25,458

See accompanying notes to consolidated financial statements

F-4

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 March 31, 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.

F-5

	March 31, 2009
	Level 1		Level 2		Level 3		Total
Embedded derivatives		—	$	175,00000		—	$	175,00000

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 three months ended March 31, 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. 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 March 31, 2009 and December 31, 2008 are summarized below:	3/31/2009		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"), President and COO, for Bluegate to borrow up to $500,000 from each of them. As of March 31, 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

F-6

4. EQUITY TRANSACTIONS

During the three months ended March 31, 2009, Bluegate completed the following equity transactions:

Stock options issued for services:

During the three months ended March 31, 2009, Bluegate expensed $150 related to previously issued stock options that vested during the period.

The following table summarizes stock options issued to the employee during the three months ended March 31, 2009:



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

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 $175,000 at March 31, 2009. The $91,000 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 202% to 290%; risk-free interest rates of 5.0%; and expected terms based on the contractual term.

F-7

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

The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and the related notes and the discussions under “Application of Critical Accounting Policies,” which describes key estimates and assumptions we make in the preparation of our financial statements.

OVERVIEW

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, telecommunication, implementation project management and consulting through its professional services organization.

GOING CONCERN

We remain dependent on outside sources of funding for continuation of our operations. Our independent registered public accounting firm issued a going concern qualification in their report dated April 9, 2009, which raises substantial doubt about our ability to continue as a going concern.

During the years ended December 31, 2008 and 2007 and the three months ended March 31, 2009 and 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. We experienced negative financial results as follows:

Years Ended December 31	2008			2007
Net loss attributable to common shareholders	$	(1,794,546	)	$	(5,726,080	)
Negative cash flow from operations		(660,290	)		(1,923,684	)
Negative working capital		(1,398,715	)		(1,134,965	)
Stockholders’ deficit		(1,354,334	)		(1,064,665	)

Three Months Ended March 31	2009			2008
Net loss	$	(141,623	)	$	(1,086,820	)
Negative cash flow from operations		(111,835	)		(249,948	)
Negative working capital		(1,613,509	)		(1,025,753	)
Stockholders’ deficit		(1,578,038	)		(959,751	)

LIQUIDITY AND CAPITAL RESOURCES

Operations for the year ended December 31, 2008 and three months ended March 31, 2009 have been funded by the issuance of common stock and options for cash in private transactions and loans from related parties. 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 March 31, 2009, our cash and cash equivalents were $79,448; total current assets were $583,226, total current liabilities were $2,196,735 and total stockholders’ deficit was $1,578,038. 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.

We intend to use debt to cover the anticipated negative cash flow into the second 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

RESULTS OR OPERATIONS – YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER 31, 2007

	Year Ended December 31,									Increase (Decrease)
	2008			2007			2006			2008 from 2007			2007 from 2006
Service revenue	$	4,442,465		$	5,835,075		$	3,707,908		$	(1,392,610	)	$	2,127,167
Cost of services		2,960,169			3,193,096			1,742,420			(232,927	)		1,450,676
Gross profit		1,482,296			2,641,979			1,965,488			(1,159,683	)		676,491
Selling, general and administrative expenses		796,245			1,717,161			1,748,298			(920,916	)		(31,137	)
Compensation expense		2,268,113			5,976,232			8,050,860			(3,708,119	)		(2,074,628	)
Goodwill impairment		-			-			113,021			-			(113,021	)
Loss from operations		(1,582,062	)		(5,051,414	)		(7,946,691	)		(3,469,352	)		(2,895,277	)
Loss on debt extinguishment		-			-			(472,952	)		-			472,952
Interest expense		(212,484	)		(74,666	)		(771,916	)		137,818			(697,250	)
Net loss		(1,794,546	)		(5,126,080	)		(9,191,559	)		(3,331,534	)		(4,065,479	)
Deemed dividend on preferred stock		-			(600,000	)		-			(600,000	)		600,000
Net loss attributable to common shareholders	$	(1,794,546	)	$	(5,726,080	)	$	(9,191,559	)	$	(3,931,534	)	$	(3,465,479	)

Service Revenue.

The $2,127,167 increase in Service Revenue from 2006 to 2007 was primarily attributable to our professional service business and our efforts to market our Medical Grade Network® business. During 2006 we commenced our national marketing efforts to hospital systems and were successful in securing two initial projects for hospitals outside of Texas. The decrease in Service Revenue of $1,392,610 from 2007 to 2008 is primarily attributable to: (i) a reduction of $1,058,000 related to the completion of certain large application development engagements; (ii) a reduction of $661,000 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 served for that system; (iii) a reduction of $549,000 related to the reduction of EMR related projects and (iv) offset by an increase of $944,000 related to the implementation project management and consulting services.

Cost of Services.

The $1,450,676 increase in Cost of Services from 2006 to 2007 is attributable to the costs associated with the increase in our professional service business and the expansion of our Medical Grade Network® services. The net decrease in Cost of Services of $232,927 from 2007 to 2008 is primarily attributable to: (i) a $282,000 decrease related to the completion of certain large application development engagements throughout 2007; (ii) a $358,000 decrease due to the reduction of EMR related projects; and (iii) partially offset by an increase of $440,000 related to personnel costs for the implementation project management and consulting services reclassified from Compensation Expense.

Gross Profit.

Our Gross Profit increased $676,491 from 2006 to 2007 and decreased $1,159,683 from 2007 to 2008. Our Gross Profit as a percentage of Service Revenue decreased from 53% in 2006 to 45% in 2007 to 33% in 2008 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 $31,137 decrease in SG&A from 2006 to 2007 was due primarily to the expansion of our sales and marketing efforts partially offset by the implementation of our cost reduction measures beginning in the third quarter of 2007. The decrease in SG&A of $920,916 from 2007 to 2008 is due primarily to the elimination of $590,000 related to business consulting and investment banking fees, as well as the effects of additional cost control measures instituted during the first quarter of 2008.

Compensation Expense.
The decrease in Compensation Expense of $2,074,628 from 2006 to 2007 is principally comprised of the following:
$	(1,479,000	)	decrease primarily related to options issued for employee services
	(832,000	)	decrease related to conversion of related party debt for common stock
	(351,000	)	decrease related to issuance of common stock warrants for extension of repayment
	(238,000	)	decrease related to contingent shares issued for Trilliant acquisition
	790,000		increase related to personnel costs of our professional service business and our efforts to market our Medical Grade Network® business
	143,000		increase related to issuance of shares for employee compensation

The decrease in Compensation Expense of $3,708,119 from 2007 to 2008 is principally comprised of the following:
$	(2,737,000	)	decrease primarily related to options issued for employee services
	(1,027,000	)	decrease related to the reduction in personnel or salaries
	(440,000	)	decrease related to reclassification of personnel to Cost of Services
	(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

Goodwill Impairment and Loss on Debt Extinguishment.

In 2006 we reported a Goodwill Impairment of $113,021 and Loss on Debt Extinguishment of $472,952. There were no similar transactions for 2007 and 2008.

Interest Expense.

The $697,250 decrease in Interest Expense from 2006 to 2007 was a result of issuing common stock warrants for the extension of repayments of the convertible notes payable in 2006. The increase in Interest Expense of $137,818 from 2007 to 2008 was a result of the $600,000 increase in borrowings under the secured note payable to related party.

Net Loss.

The Net Loss decreased $4,065,479 from 2006 to 2007 and decreased $3,331,534 from 2007 to 2008 primarily due to the decrease in Compensation Expense as detailed above, as well as the changes in the Service Revenue and Cost of Services as described above.

Deemed Dividend on Preferred Stock.

There was no Deemed Dividend on Preferred Stock and common stock warrants issued for the years 2008 and 2006 as compared to $600,000 for the year 2007.

Net Loss Attributable to Common Shareholders.

The Net Loss Attributable to Common Shareholders decreased $3,465,479 from 2006 to 2007 and decreased $3,931,534 from 2007 to 2008 due to the items described above.

FINANCIAL CONDITION

	Year Ended December 31,									Increase (Decrease)
	2008			2007			2006			2008 from 2007			2007 from 2006
Net cash (used in) operating activities	$	(660,290	)	$	(1,923,684	)	$	(1,039,364	)	$	(1,263,394	)	$	884,320
Net cash (used in) investing activities		(23,470	)		(34,708	)		(26,409	)		(11,238	)		8,299
Net cash provided by financing activities		651,340			1,745,974			1,294,103			(1,094,634	)		451,871
Net increase (decrease) in cash	$	(32,420	)	$	(212,418	)	$	228,330		$	(179,998	)	$	(440,748	)

Cash balance at end of year	$	11,283		$	43,703		$	256,121

Operating Activities.

The increase of $884,320 in cash used in operations from 2006 to 2007 is primarily due to the $790,000 increase related to personnel costs of our professional service business and our efforts to market our Medical Grade Network® business.

The decrease of $1,263,394 in cash used in operations from 2007 to 2008 is primarily due to the $1,027,000 decrease in personnel and related salaries as a result of: (1) the completion of certain large application development engagements during 2007; (2) 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; (3) the reduction of EMR related projects; 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 2006 through 2008 are insignificant.

Financing Activities.

The increase of $451,871 in net cash provided by financing activities from 2006 to 2007 is primarily due to: (1) a $770,000 decrease in investments in the company’s common stock and warrants; (2) a $600,000 increase in an investment in preferred stock by a related party; (3) a $467,000 decrease due to the payment of convertible notes payable in 2006; and (4) a $244,000 net increase in related party short term debt.

The net decrease of $1,094,634 in cash provided by financing activities from 2007 to 2008 is primarily due to: (1) a $605,000 decrease in investments in the company’s common stock and warrants; (2) a $600,000 decrease due to the investment in preferred stock by a related party in 2007; and (3) a $65,000 net increase in related party short term debt.

RESULTS OR OPERATIONS – THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2008

	Three Months Ended March 31,									Increase (Decrease)
	2009			2008			2007			2009 from 2008			2008 from 2007
Service revenue	$	1,013,955		$	1,042,527		$	1,361,067		$	(28,572	)	$	(318,540	)
Cost of services		620,814			737,847			733,512			(117,033	)		4,335
Gross profit		393,141			304,680			627,555			88,461			(322,875	)
Selling, general and administrative expenses		145,370			260,217			867,459			(114,847	)		(607,242	)
Compensation expense		252,176			1,106,191			1,797,125			(854,015	)		(690,934	)
Loss from operations		(4,405	)		(1,061,728	)		(2,037,029	)		(1,057,323	)		(975,301	)
Interest expense		(67,650	)		(27,320	)		(39,177	)		40,330			(11,857	)
Other income		21,432			2,228			-			19,204			2,228
Loss on derivative financial instruments		(91,000	)		-			-			(91,000	)		-
Net loss	$	(141,623	)	$	(1,086,820	)	$	(2,076,206	)	$	(945,197	)	$	(989,386	)

Service Revenue.

The $318,540 decrease in Service Revenue from 2007 to 2008 is primarily attributable to: (1) a reduction of $325,000 related to the completion of certain large application development engagements throughout 2007; (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 served for that system; (3) a reduction of $26,000 related to the reduction of EMR related projects and (4) offset by an increase of $201,000 related to the implementation project management and consulting services. The $28,572 decrease in Service Revenue from 2008 to 2009 is primarily attributable to: (1) a reduction of $160,000 related to our Medical Grade Network® business; (2) a reduction of $30,000 related to product sales and (3) offset by an increase of $190,000 related to the implementation project management and consulting services.

Cost of Services.

The $4,335 increase in Cost of Services from 2007 to 2008 is insignificant. The $117,033 decrease in Cost of Services from 2008 to 2009 is primarily attributable to: (1) a $70,000 decrease in personnel related to the completion of certain large application development engagements and other cost cutting measures; (2) a $90,000 decrease related to our Medical Grade Network® business; and (2) offset by an increase of $45,000 related to technology consulting services.

Gross Profit.

Our Gross Profit decreased $322,875 from 2007 to 2008 and increased $88,461 from 2008 to 2009. Our Gross Profit as a percentage of Service Revenue decreased from 46% in 2007 to 29% 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 $607,242 decrease in SG&A from 2007 to 2008 was due primarily to the elimination of $590,000 related to business consulting and investment banking fees, as well as the effects of additional cost control measures instituted during the first quarter of 2008. The $114,847 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 $690,934 from 2007 to 2008 is principally comprised of the following:
$	(864,000	)	decrease related to options issued for employee services
	(335,000	)	decrease related to changes in personnel
	(136,000	)	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 $854,015 from 2008 to 2009 is principally comprised of the following:
$	(519,000	)	decrease related to conversion of related party debt for common stock
	(145,000	)	decrease related to options issued for employee services
	(109,000	)	decrease related to warrants issued to borrow funds from a related party
	(60,000	)	decrease related to a reduction in personnel
	(17,000	)	decrease related to related party purchase of common stock for cash

Interest Expense.

The $11,857 decrease in Interest Expense from 2007 to 2008 was insignificant. The increase in Interest Expense of $40,330 from 2008 to 2009 was a result of the increase in borrowings under the secured note payable to related party.

Other Income.

The changes in other income from 2007 through 2009 are insignificant.

Loss on Derivative Financial Instruments.

Net Loss.

The Net Loss decreased $989,386 from 2007 to 2008 and decreased $945,197 from 2008 to 2009 primarily due to the decrease in Compensation Expense as detailed above, as well as the changes in the Service Revenue, Cost of Services and SG&A as described above.

FINANCIAL CONDITION

	Three Months Ended March 31,									Increase (Decrease)
	2009			2008			2007			2009 from 2008			2008 from 2007
Net cash (used in) operating activities	$	(111,835	)	$	(249,948	)	$	(773,040	)	$	(138,113	)	$	(523,092	)
Net cash (used in) investing activities		-			(9,370	)		(17,287	)		(9,370	)		(7,917	)
Net cash provided by financing activities		180,000			255,398			743,264			(75,398	)		(487,866	)
Net increase (decrease) in cash	$	68,165		$	(3,920	)	$	(47,063	)	$	72,085		$	43,143

Cash balance at end of period	$	79,448		$	39,783		$	209,058

Operating Activities.

The net decrease of $523,092 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 $138,113 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 $487,866 in net cash provided by financing activities from 2007 to 2008 is due to: (1) a $305,000 decrease in investments in the company’s common stock and warrants; (2) a $315,000 decrease in proceeds from a note payable from an individual; and (3) a $132,000 net increase in related party short term debt. The decrease of $75,398 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 $40,000 increase in payments on 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 March 31, 2009, we had approximately 290 Medical Grade Network® customers which we forecast will increase moderately this year. During the second half of 2008 and first quarter 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.

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 quarter 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.

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.

Years Ended December 31	2008			2007
Net loss attributable to common shareholders	$	(1,794,546	)	$	(5,726,080	)
Negative cash flow from operations		(660,290	)		(1,923,684	)
Negative working capital		(1,398,715	)		(1,134,965	)
Stockholders’ deficit		(1,354,334	)		(1,064,665	)

Three Months Ended March 31	2009			2008
Net loss	$	(141,623	)	$	(1,086,820	)
Negative cash flow from operations		(111,835	)		(249,948	)
Negative working capital		(1,613,509	)		(1,025,753	)
Stockholders’ deficit		(1,578,038	)		(959,751	)

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

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.

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.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes in, nor any disagreements with, our independent auditors.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the name, age, positions and offices or employments for the past five years as of December 31, 2008, of our executive officers and directors. Members of the Board of Directors are elected and hold office until their successors are elected and qualified. All of the officers serve at the pleasure of the Board of Directors of the Company.

NAME	AGE	POSITION

Stephen Sperco	55	Director and Chief Executive Officer

Manfred Sternberg	49	Director and Chief Strategy Officer

William Koehler	43	Director and President

Charles Leibold	59	Chief Financial Officer

Dale Geary (a)	51	Director

(a)Mr. Geary serves on our compensation committee.

Stephen Sperco was appointed the Company’s Chief Operating Officer on December 31, 2006 and then was appointed Chief Executive Officer on April 2, 2007. Mr. Sperco is the founder and President of Sperco Associates, Inc. and Sperco Technology Group, L.L.C. Sperco Associates was founded in 1986 and is headquartered in Chicago, Illinois. Both organizations are privately held consulting firms that focus in the areas of Telecommunications and Information Technology (IT) systems. The organizations provide independent, third party consulting, planning, and facilities management services. The consulting personnel provide services in the area of Telecommunications to support the voice, data, and image requirements of clients. Support in the area of IT systems is provided for the Desktop Computing, Local Area Network (LAN), and Wide Area Network (WAN) requirements of clients. The organizations also provide Management Support, Staff Augmentation, Quality Assurance, and operational functions related to Facilities Management and Outsourcing engagements. The firm has conducted consulting engagements in North America, the United Kingdom, and Europe. The industry focus of Sperco Associates has been in the Private Sector with Financial Services, Insurance, Health Care, and Fortune 1000 organizations. The focus of Sperco Technology Group has been in the Public Sector with Education and Health Care organizations. For IT Infrastructure, Telecommunications, and IT Physical Infrastructure the firms have developed significant expertise in Strategic Planning, Optimization, Design, Procurement, Contract Negotiations, Quality Assurance, and Implementation Project Management. In the areas of Facilities Management and Outsourcing, the firms have developed significant expertise in Organization Management and Planning, Project Management, Strategic Planning, Contract Negotiations, and the management of day-to-day department operations. The firms have extensive experience in the specialty areas of Financial Trading Floors, Call Center Applications, Structured Wiring Systems, Voice Recording/Logging Applications, Interactive Voice Response (IVR) applications, IP Telephony, and Network Optimization. Mr. Sperco is responsible for both the executive management of the consulting firms and the direction of consulting engagements. Mr. Sperco has been a consultant since 1975 and in this capacity has extensive experience with the planning and management of complex engagements. Before founding Sperco Associates, Inc., Mr. Sperco was a principal and Regional Vice President for Marketing and Systems Development Corporation. Marketing and Systems Development Corporation was a telecommunications consulting firm that was subsequently purchased by EDS. Mr. Sperco was with Marketing and Systems Development Corporation for ten years. Mr. Sperco earned a Bachelor of Arts degree in Economics from Middlebury College, Middlebury, Vermont in 1975.

Manfred Sternberg has been our Chief Executive Officer and a Director since 2001. Mr. Sternberg shifted from Chief Executive Officer to Chief Strategy Officer on April 2, 2007. Prior to 2001, Mr. Sternberg was an investor and board member of several broadband providers in Houston, Texas including our predecessor. He is a graduate of Tulane University and Louisiana State University School of Law. Mr. Sternberg is licensed to practice law in Texas and Louisiana and is Board Certified in Consumer and Commercial Law by the Texas Board of Legal Specialization.

William Koehler has been a Director since May, 2003. Mr. Koehler was appointed President and Chief Operating Officer in September 2005 after Bluegate acquired substantially all of the assets of Trilliant Corporation, of which Mr. Koehler was a founder and served as President/CEO from 2000 until September 2005. From 1992 until 2000, Mr. Koehler was the Vice President of Business Development of an Electrical Engineering firm that specialized in the assessment, design and project implementation of technology efforts for their clients. Mr. Koehler has a BBA from Texas A&M in Business Analysis, with a specialization in Production Operation Management. Mr. Koehler has spent the last 15 years of his career working in the IT and Professional Services industry and has a broad range of skills. His experience ranges from the design and management of the implementation of multination voice and data networks to the needs assessment and the development of a Global technology strategy for large multinational corporations. The customers that Mr. Koehler has worked with include Pennzoil, American General Insurance, Texaco, British Petroleum, Brown and Root and many others. At the same time he has worked with dozens of school districts by assisting in the development of more cost effective and robust systems in an attempt to help these districts move technology into the classrooms and help children learn. Mr. Koehler has spoken at many state and local events about technology and continues to look for opportunities to continue this effort.

Charles Leibold became Bluegate's Controller in January 2006 and effective June 1, 2006 he was appointed our Chief Financial Officer. Mr. Leibold began his career with the Big Four accounting firm of Deloitte and Touche. Subsequently, he became Director of International and Domestic Field Audit for the Avis Rent a Car System and Vice President of Finance and Treasurer of AIM Group, Inc., the holding company for certain Budget Rent a Car franchises. From January 1998 through May 1999, as Manager of AquaSource Inc., he was aggressively involved in the development of a start-up venture experiencing rapid growth through acquisitions. Specifically he was responsible for the successful transition of all of the seller's business into AquaSource. From June 1999 through May 2003, as Vice President and Director of Acquisition Partners, Inc., he directed the strategic planning and staffing of a start-up venture providing acquisitions and divestiture services to its clients. From June 2003 through mid-January 2006, Mr. Leibold provided consulting, accounting and tax services to clients in a wide variety of industries. In addition to having served in key financial management roles for both large and small companies, Mr. Leibold is a Certified Public Accountant and a Member of the Institute of Certified Public Accountants and Texas State Board of Public Accountancy. Mr. Leibold graduated from Pace University with a BBA in Accounting.

Dale Geary was appointed as a Director in June 2007. Mr. Geary is a Managing Director of SAI Corporation (“SAIC”) which is a control person of Bluegate Corporation. He has been with SAIC since its inception in 1996. SAIC is involved in both the investment in, and providing resources to Telecommunications and Information Technology organizations. At SAIC, Mr. Geary is responsible for client engagements and business development. Mr. Geary earned a Bachelor of Science degree in Computer Science and Business Administration in 1982 from Northern Illinois University in DeKalb, Illinois.

DIRECTOR INDEPENDENCE.

In June 2007, we increased the size of our Board of Directors to consist of five Directors. We currently have four members of our Board of Directors, who were elected and hold office until their successors are elected and qualified. One board position is vacant. The four members of the Board of Directors are Manfred Sternberg, Stephen Sperco, William Koehler and Dale Geary. Manfred Sternberg is the Chairman of the Board of Directors and the Company’s Chief Strategy Officer, Stephen Sperco is the Company’s Chief Executive Officer and William Koehler is the Company’s President. Executive officers are appointed by the Board of Directors and serve until their successors have been duly elected and qualified. There is no family relationship between any of our directors and executive officers.

BOARD OF DIRECTORS MEETINGS.

During the fiscal year ended December 31, 2008, the Board of Directors held thirteen meetings which were attended by all four members.

NOMINATING COMMITTEE.

We do not have any nominating committee of the Board, or committee performing a similar function. Shareholders may recommend nominees for Director by sending written communications to the company’s Board of Directors to the attention of the Chairman of the Board, Manfred Sternberg at Bluegate Corporation, 701 North Post Oak Road, Suite 600, Houston, Texas 77024. Every director will participate in the consideration of director nominees.

AUDIT COMMITTEE.

In March 2005, our Board adopted our Audit Committee Charter (the "Charter") which established our Audit Committee. There are no current members of the audit committee and our Board of Directors serves as the audit committee. We do not have an audit committee financial expert serving on its audit committee. We are currently pursuing the recruitment of an independent director who is also a financial expert to be the audit committee.

Members of the Board of Directors acting in the capacity of the Audit Committee have (1) reviewed and discussed the audited financial statements with management, and (2) have received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and have discussed with the independent accountant the independent accountant's independence; and based on the review and discussions referred to above, the audit committee recommended to the board of directors that the audited financial statements be included in the company’s annual report on Form 10-K for the last fiscal year for filing with the Commission. The entire Board of Directors acting in the capacity of the Audit Committee is Stephen Sperco, Manfred Sternberg, William Koehler and Dale Geary.

COMPENSATION COMMITTEE.

In August 2007, our Board adopted our Compensation Committee with Dale Geary serving as its sole member. The Compensation Committee administers the Company’s incentive plans, sets policies that govern executives’ annual compensation and long-term incentives. During the fiscal year ended December 31, 2008, the Compensation Committee held one meeting.

SHAREHOLDER COMMUNICATIONS.

Shareholders may send written communications to the company’s Board of Directors to the attention of the Chairman of the Board, Manfred Sternberg. Persons wishing to write to the Board or to a specified director or committee of the Board should send correspondence to the Corporate Secretary at Bluegate Corporation, 701 North Post Oak Road, Suite 600, Houston, Texas 77024. Electronic submissions of shareholder correspondence will not be accepted.

EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation paid for services rendered to the Company during the last two fiscal years by the Named Executive Officers:

SUMMARY COMPENSATION TABLE
Name and principal position	Year	Salary ($)	Bonus ($)	Option Awards (6) ($)	All Other Compensation (7) ($)	Total ($)
Stephen Sperco (1)	2008	49,334			19,000	68,334
CEO (PEO), Director	2007	150,000	100,000	15,240	14,000	279,240

Manfred Sternberg (2)	2008	49,334			19,000	68,334
Chief Strategy Officer, Director	2007	180,000	142,500	15,240	28,000	365,740

William Koehler (3)	2008	49,334			19,000	68,334
President, Director	2007	150,000		15,240	25,000	190,240

Charles Leibold (4)	2008	147,000			9,000	156,000
CFO (PFO), Secretary	2007	147,000		15,240	9,000	171,240

Larry Walker (5)	2008	125,000				125,000
President of Trilliant Technology	2007	125,000		15,240		140,240
Group, Inc. (100% owned subsidiary)

(1)In December 2006, we entered into a two year employment agreement with Stephen Sperco at an annual base salary of $150,000 with a monthly vehicle transportation allowance of $750 to serve as our Chief Operating Officer. In April 2007, Mr. Sperco was appointed our Chief Executive Officer. In June 2007, one of the conditions of Mr. Sperco’s purchase of Series C Preferred Stock described in the attached financial statements, footnote 9 – stockholders’ deficit, was that Mr. Sperco be appointed a Director. In November 2007, Mr. Sperco was granted a $100,000 cash bonus by the board of directors as a result of his achievements attained during his first six months as the Company’s CEO. This bonus was paid in December 2007. In December 2008, Mr. Sperco’s employment agreement expired. In an effort to reduce the company’s cash flow constraints, effective January 1, 2008, Mr. Sperco’s base salary was reduced to $100,000. On May 1, 2008, Mr. Sperco’s annual base salary was further reduced to $24,000 until the company achieves a net positive cash flow from operations and beginning January 2009, Mr. Sperco no longer receives a vehicle transportation allowance.

Effective January 1, 2007, the Company approved a compensation plan for its Board of Directors. Under the compensation plan all directors will be compensated at the rate of $10,000 annually. Mr. Sperco has earned $10,000 and $5,000 for 2008 and 2007, respectively under this plan.

In December 2007, 8,601,400 previously issued common stock options to certain employees with exercise prices ranging from $0.39 to $6.00 were reduced to $0.34. As a result of this transaction, 1,200,000 of Mr. Sperco’s options with an exercise price of $0.95 were reduced to $0.34. In December 2007, Mr. Sperco was granted 100,000 options to purchase common stock at an exercise price of $0.17 per share vesting immediately and expiring on December 31, 2012. In February 2008, as a result of the transaction described in the attached financial statements, footnote 9 – stockholders’ deficit, common stock, item (2), the exercise price of the previously issued options to Mr. Sperco to purchase 1,200,000 shares and 100,000 shares of our common stock at $0.34 and $0.17 per share, respectively, was reduced to $0.0333334 per share.

(2) In February 2005 we entered into an employment agreement with Mr. Sternberg for a period of two years at an annual base salary of $180,000, a monthly vehicle transportation allowance of $750 (which was increased to $1,500 during 2006) and bonus opportunity, to serve as our Chief Executive Officer. In November 2006, Mr. Sternberg was granted a bonus by the board of directors as a result of his past efforts to the Company and this bonus was paid in January 2007 through the issuance of 150,000 shares of common stock to Mr. Sternberg. In February 2007, Mr. Sternberg’s employment agreement expired and in April 2007, Mr. Sternberg shifted from Chief Executive Officer to Chief Strategy Officer. In an effort to reduce the company’s cash flow constraints, effective January 1, 2008, Mr. Sternberg’s base salary and monthly vehicle transportation allowance were reduced to $100,000 and $750, respectively. On May 1, 2008, Mr. Sternberg’s annual base salary was further reduced to $24,000 until the company achieves a net positive cash flow from operations and beginning January 2009, Mr. Sternberg no longer receives a vehicle transportation allowance.

Effective January 1, 2007, the Company approved a compensation plan for its Board of Directors. Under the compensation plan all directors will be compensated at the rate of $10,000 annually. Mr. Sternberg has earned $10,000 for 2008 and 2007 under this plan.

(3) In September 2005 we entered into an employment agreement with William Koehler for a period of two years at an annual base salary of $150,000 with a monthly vehicle transportation allowance of $750 (which was increased to $1,250 during 2006) to serve as President and Chief Operating Officer. In September 2007, Mr. Koehler’s employment agreement expired. In an effort to reduce the company’s cash flow constraints, effective January 1, 2008, Mr. Koehler’s base salary and monthly vehicle transportation allowance were reduced to $100,000 and $750, respectively. On May 1, 2008, Mr. Koehler’s annual base salary was further reduced to $24,000 until the company achieves a net positive cash flow from operations and beginning January 2009, Mr. Koehler no longer receives a vehicle transportation allowance.

Effective January 1, 2007, the Company approved a compensation plan for its Board of Directors. Under the compensation plan all directors will be compensated at the rate of $10,000 annually. Mr. Koehler has earned $10,000 for 2008 and 2007 under this plan.

(4) In January 2006, Charles Leibold was hired as the Company’s Controller and in June 2006, we entered into a two year employment agreement with him to serve as our Chief Financial Officer at an annual base salary of $140,000 with a monthly vehicle transportation allowance of $750. In January 2007, Mr. Leibold’s annual salary was increased to $147,000 and in May 2008, his employment agreement expired.

(5) In September 2005 we entered into an employment agreement with Larry Walker for a period of two years at an annual base salary of $125,000 per year serve as President of Trilliant Technology Group, Inc. a subsidiary of Bluegate. In September 2007, Mr. Walker’s employment agreement expired.

(6) The amounts in this column reflect the expense recognized for financial statement reporting purposes for the fiscal years ended December 31, 2008 and 2007, in accordance with FAS 123(R), of outstanding stock options granted as part of the stock option plan. The assumption used in calculating these amounts, as well as a description of our stock option plan, are set forth in Note 9 to our Financial Statements for the year ended December 31, 2008, which is located on page F-13 of our Annual Report on Form 10-K. Compensation cost is generally recognized over the vesting period of the award.

(7)The amounts in this column reflect the vehicle transportation allowance and fees earned as directors for Stephen Sperco, Manfred Sternberg and William Koehler and vehicle transportation allowance for Charles Leibold.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END DECEMBER 31, 2008

Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable				Option Exercise Price ($)		Option Expiration Date

Stephen Sperco		50,000	(1	)		0.03	12/31/2011

Manfred Sternberg		275,000	(2	)		0.34	1/31/2010
		1,000,000	(3	)		0.34	1/31/2010
		1,500,000	(4	)		0.34	11/28/2011
		600,000	(5	)		0.34	11/28/2011
		100,000	(6	)		0.17	12/31/2012
		3,475,000

William Koehler		50,000	(7	)		0.34	2/22/2010
		340,000	(8	)		0.34	9/1/2010
		1,200,000	(9	)		0.34	8/1/2011
		100,000	(6	)		0.17	12/31/2012
		1,690,000

Charles Leibold		600,000	(10	)		0.34	6/1/2011
		100,000	(6	)		0.17	12/31/2012
		700,000

Larry Walker		250,000	(11	)		0.34	9/1/2010
		340,000	(12	)		0.34	6/1/2011
		100,000	(6	)		0.17	12/31/2012
		690,000

Note	Grant Date	Incremental Vesting Dates
(1)	12/31/2006	25,000	vested monthly from 11/08 through 12/08
(2)	2/1/2005	275,000	vested 2/1/05
(3)	2/1/2005	50,000	vested 2/1/05; 50,000 monthly from 3/05 through 9/06
(4)	11/28/2006	1,500,000	vested 11/28/06
(5)	11/28/2006	100,000	vested monthly from 12/06 through 5/07
(6)	12/31/2007	100,000	vested 12/31/07
(7)	2/23/2005	50,000	vested 2/23/05
(8)	9/1/2005	50,000	vested 9/1/05 and 290,000 vested on 9/1/06
(9)	8/1/2006	600,000	vested on 8/1/06; 50,000 monthly from 9/06 through 8/07
(10)	6/1/2006	50,000	vested 6/1/06; 25,000 monthly from 7/06 through 4/08
(11)	9/1/2005	10,417	vested monthly from 9/05 through 8/07
(12)	8/1/2006	100,000	vested 8/1/06; 20,000 monthly from 9/06 through 8/07

OPTION EXERCISES AND STOCK VESTED
Option Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)

Stephen Sperco	1,250,000	(16,667)

The following table represents a summary of the compensation earned to the members of our Board of Directors during the fiscal year ended December 31, 2008.

DIRECTOR COMPENSATION

Name		Fees Earned or Paid in Cash ($)
Stephen Sperco (1)		-
Manfred Sternberg (1)		-
William Koehler (1)		-
Dale Geary (2)		15,000

Effective January 1, 2007, the board approved to compensate each member of the Board of Directors and each Committee Chair with an annual payment in the amount of $10,000 and $5,000, respectively.

(1) The compensation for these Directors is included in Executive Compensation.

(2) Mr. Geary, as a Director and Compensation Committee Chairman, earned $10,000 and $5,000 respectively. As of December 31, 2008, Mr. Geary has 100,000 options outstanding that were granted to him in 2007 that had a $15,240 fair value computed in accordance with SFAS No. 123(R).

EMPLOYEE STOCK OPTION PLANS

While we have been successful in attracting and retaining qualified personnel, we believe that our future success will depend in part on our continued ability to attract and retain highly qualified personnel. We pay wages and salaries that we believe are competitive. We also believe that equity ownership is an important factor in our ability to attract and retain skilled personnel. In 2002, we adopted the 2002 Stock and Stock Option Plan (the "2002 Plan"). The purpose of the 2002 Plan is to further our interests, our subsidiaries and our stockholders by providing incentives in the form of stock options to key employees, consultants, directors and others who contribute materially to our success and profitability. The grants recognize and reward outstanding individual performances and contributions and will give such persons a proprietary interest in us, thus enhancing their personal interest in our continued success and progress. The 2002 Plan also assists us and our subsidiaries in attracting and retaining key employees and Directors. The 2002 Plan is administered by the Board of Directors. The Board of Directors has the exclusive power to select the participants in the 2002 Plan, to establish the terms of the stock and options granted to each participant, provided that all options granted shall be granted at an exercise price equal to at least 85% of the fair market value of the common stock covered by the option on the grant date and to make all determinations necessary or advisable under the 2002 Plan. The maximum aggregate number of shares of common stock that may be granted or optioned and sold under the 2002 Plan is 450,000 shares. As of December 31, 2007, 450,000 shares of common stock have been granted pursuant to the 2002 Plan and the 2002 Plan is no longer active.

In 2005 we adopted the 2005 Stock and Stock Option Plan (the "2005 Plan"). The purpose of the 2005 Plan is to further our interests, our subsidiaries and our stockholders by providing incentives in the form of stock options to key employees, consultants, directors and others who contribute materially to our success and profitability. The grants recognize and reward outstanding individual performances and contributions and will give such persons a proprietary interest in us, thus enhancing their personal interest in our continued success and progress. The 2005 Plan also assists us and our subsidiaries in attracting and retaining key employees and Directors. The 2005 Plan is administered by the Board of Directors. The Board of Directors has the exclusive power to select the participants in the 2005 Plan, to establish the terms of the stock and options granted to each participant, provided that all options granted shall be granted at an exercise price equal to at least 85% of the fair market value of the common stock covered by the option on the grant date and to make all determinations necessary or advisable under the 2005 Plan. The maximum aggregate number of shares of common stock that may be granted or optioned and sold under the Plan is 3,000,000 shares. As of December 31, 2008, 1,132,685 shares of common stock have been granted pursuant to the 2005 Plan.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of information concerning the number of shares of common stock owned beneficially as of April 24, 2009 which was 26,033,565 shares, by: (i) each person (including any group) known by us to own more than five (5%) of any class of our voting securities, (ii) each of our directors and executive officers, and (iii) our officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.

TITLE OR CLASS	NAME AND ADDRESS OF BENEFICIAL OWNER	AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP		PERCENT OF CLASS (1)

Common Stock	Manfred Sternberg	8,513,868	(2)	27.8%
	701 N. Post Oak, Suite 600
	Houston, Texas 77024

Common Stock	William Koehler	4,975,117	(3)	17.6%
	701 N. Post Oak, Suite 600
	Houston, Texas 77024

Common Stock	Stephen Sperco	15,420,250	(4)	44.0%
	701 N. Post Oak, Suite 600
	Houston, Texas 77024

Common Stock	SAI Corporation	4,713,500	(5)	16.3%
	180 North Stetson Avenue, Suite 700
	Chicago, Illinois 60601

Common Stock	Dale Geary	275,000	(6)	1.1%
	701 N. Post Oak, Suite 600
	Houston, Texas 77024

Common Stock	Charles Leibold	850,000	(7)	3.2%
	701 N. Post Oak, Suite 600
	Houston, Texas 77024

Common Stock	Robert Davis	1,779,228	(8)	6.8%
	701 N. Post Oak, Suite 600
	Houston, Texas 77024
All executive officers and directors - 5 persons		30,034,235	(9)	70.2%

(1) The percentage of beneficial ownership of Common Stock is based on 26,033,565 shares of Common Stock outstanding as of April 24, 2009 and includes all shares of Common Stock issuable upon the exercise of outstanding options, warrants or conversion of preferred shares to purchase Common Stock.

(2) Of the 8,513,868 shares beneficially owned by Mr. Sternberg: (i) 3,220,279 are common shares owned directly by Mr. Sternberg, (ii) 683,589 are common shares owned indirectly by Mr. Sternberg, and (iii) 4,610,000 are common shares issuable upon the exercise of options and warrants.

(3) Of the 4,975,117 shares beneficially owned by Mr. Koehler: (i) 2,735,117 are common shares owned directly by Mr. Koehler, and (ii) 2,240,000 are common shares issuable upon the exercise of options and warrants.

(4) Of the 15,420,250 shares beneficially owned by Mr. Sperco: (i) 4,456,750 are common shares owned directly by Mr. Sperco, (ii) 1,913,500 are common shares owned indirectly by Mr. Sperco, (iii) 7,850,000 are common shares issuable upon the exercise of options and warrants, and (iv) 1,200,000 are common shares issuable upon the conversion of preferred shares. Mr. Sperco controls SAI Corporation which is listed in item 5 below. In June 2007 the board of directors approved the issuance of 48 shares of Series C voting convertible non-redeemable preferred stock with a par value of $0.001 per share and a liquidation value of $12,500 per share. Each share of Series C convertible preferred stock may be converted, at the option of the shareholder, into 25,000 shares of common stock or a total of 1,200,000 shares of common stock. Each share of preferred stock has 15 times the number of votes its conversion-equivalent number of shares of common stock, or 375,000 votes per share of preferred stock. The 48 shares of preferred stock will have an aggregate of 18 million votes. Effective June 28, 2007, we sold 8 shares of Series C preferred stock for $100,000 in cash to SAI Corporation. We also granted to SAI Corporation warrants to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. On the same day we sold 40 shares of Series C preferred stock for $500,000 in cash to Stephen Sperco. We also granted to Stephen Sperco warrants to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. The Preferred Stock votes along with the common stock on all matters requiring a vote of shareholders and the Preferred Stock is not redeemable by us. Bluegate’s net tangible book value (deficit) per share was ($0.13) prior to the investment in the preferred stock by Mr. Sperco and SAI Corporation on June 28, 2007. After the $600,000 cash investment and assuming that Mr. Sperco and SAI Corporation converted all of the 48 shares of preferred stock into 1,200,000 shares of common stock and exercised all of the 7,200,000 warrants at $0.17 per share resulting in $1,020,000 proceeds to Bluegate, Bluegate’s net tangible book value (deficit) per share would have been reduced to ($0.01). As a result of his purchase of Series C Preferred Stock described above, and his previously and subsequently acquired stock, options and warrants, Mr. Sperco beneficially owns 44% of our common stock without taking into account the super voting power of the Preferred stock, and 62% when taking into account the super voting power of the Preferred Stock.

(5) Of the 4,713,500 shares beneficially owned by SAI Corporation: (i) 1,913,500 are common shares owned directly by SAI Corporation, (ii) 2,600,000 are common shares issuable upon the exercise of warrants, and (iii) 200,000 are common shares issuable upon the conversion of preferred shares. SAI Corporation is controlled by Mr. Sperco who is listed in item 4 above. In June 2007 the board of directors approved the issuance of 48 shares of Series C voting convertible non-redeemable preferred stock with a par value of $0.001 per share and a liquidation value of $12,500 per share. Each share of Series C convertible preferred stock may be converted, at the option of the shareholder, into 25,000 shares of common stock or a total of 1,200,000 shares of common stock. Each share of preferred stock has 15 times the number of votes its conversion-equivalent number of shares of common stock, or 375,000 votes per share of preferred stock. The 48 shares of preferred stock will have an aggregate of 18 million votes. Effective June 28, 2007, we sold 8 shares of Series C preferred stock for $100,000 in cash to SAI Corporation. We also granted to SAI Corporation warrants to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. The Preferred Stock votes along with the common stock on all matters requiring a vote of shareholders and the Preferred Stock is not redeemable by us. As a result of SAI Corporation's purchase of Series C Preferred Stock described above, and the previously and subsequently acquired stock and warrants, SAI Corporation beneficially owns 17% of our common stock without taking into account the super voting power of the Preferred stock, and 24% when taking into account the super voting power of the Preferred Stock.

(6) Of the 275,000 shares beneficially owned by Mr. Geary: (i) 150,000 are common shares owned directly by Mr. Geary, and (ii) 125,000 are common shares issuable upon the exercise of options and warrants.

(7) Of the 850,000 shares beneficially owned by Mr. Leibold: (i) 150,000 are common shares owned directly by Mr. Leibold, and (ii) 700,000 are common shares issuable upon the exercise of options.

(8) Of the 1,779,228 shares beneficially owned by Mr. Davis: (i) 35,023 are common shares owned directly by Mr. Davis, (ii) 1,546,205 are common shares owned indirectly by Mr. Davis, and (iii) 198,000 are common shares issuable upon the exercise of options and warrants.

(9) Includes shares, options, warrants and preferred convertible shares owned by these persons.

As described in items 4 and 5 above, as a result of Mr. Sperco's and SAI Corporation's purchase of Series C Preferred Stock, and Mr. Sperco's previously and subsequently acquired stock, options and warrants, Mr. Sperco beneficially owns 44% of our common stock without taking into account the super voting power of the Preferred stock, and 62% when taking into account the super voting power of the Preferred Stock.

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS

During the years ended December 31, 2008 and 2007, the Company engaged in related party transactions as follows:

Secured note payable: During 2007, the Company entered into a line of credit agreement with SAI Corporation ("SAIC"), a corporation controlled by our CEO, Stephen Sperco (“SS”), 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 SS, 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) STG all past due amounts totaling $56,837. See footnote 13, Subsequent Events to the December 31, 2008 financial statements. As of December 31, 2008 and 2007, the Company had borrowed $1,100,000 and $500,000, respectively. The note is due upon demand and is described in footnote 7, notes payable to the December 31, 2008 financial statements. During the years ended December 31, 2008 and 2007, the Company incurred interest expense on the related party note payable debt of $116,712 and $5,367, respectively. At December 31, 2008 $14,014 is payable to SAIC and included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet.

Accrued liabilities to related parties: Until the company achieves a net positive cash flow from operations, MS, WK and SS have agreed not to cash some of their payroll or expense reimbursement checks issued to them for the period from July 1, 2007 through December 31, 2008. As of December 31, 2008, $64,817 of payroll and expense reimbursement checks has not been cashed and $3,154 of accrued interest calculated thereon is included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet. As of December 31, 2007, $312,931 of payroll and expense reimbursement checks have not been cashed and are included under the caption accrued liabilities to related parties totaling $344,598 on the balance sheet. As of December 31, 2008, $71,667 of fees accrued to Board of Director members MS - $20,000; WK - $20,000; SS - $15,000 and Dale Geary (“DG”) - $16,667 are included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet. As of December 31, 2007, $31,667 of fees accrued to Board of Director members MS - $10,000; WK - $10,000; SS - $5,000 and DG - $6,667 are included under the caption accrued liabilities to related parties totaling $344,598 on the balance sheet. As of December 31, 2008, $18,000 of accrued vehicle allowances to MS - $6,000; WK - $6,000 and SS - $6,000 are included under the caption accrued liabilities to related parties totaling $178,655 on the balance sheet.

During the year ended December 31, 2008, the Company engaged in equity transactions as follows:

On February 14, 2008, we finalized and consummated a transaction with a deemed effective date of February 1, 2008 whereby we issued 9,150,000 shares of stock for the conversion of related party debts of directors totaling $305,000 and we issued 300,000 shares of stock to two managers for $10,000. The conversion and purchase price per share was $0.0333334. The excess of the fair value of the stock over the debt converted and shares purchased totaled $535,500 and was recorded as compensation expense. The following individuals or related entities converted debt and received the following shares: (i) Stephen Sperco, Director and CEO, received 3,000,000 shares; (ii) SAI Corporation, an entity controlled by Stephen Sperco, received 1,500,000 shares; (iii) Manfred Sternberg, Director and Chief Strategy Officer, received 2,400,000 shares; (iv) William Koehler, Director and President, received 2,100,000 shares; and, (v) Dale Geary, Director, received, 150,000 shares. The following members of management purchased the following shares: Charles Leibold, CFO, purchased 150,000 shares; and, Larry Walker, President of Trilliant Technology Group, Inc., our 100% owned subsidiary, purchased 150,000 shares.

As a result of the February 14, 2008 transaction: (1) certain adjustment provisions in a previous convertible note agreements and warrant agreements issued in September 2005 and subsequent, were triggered and pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 1,534,800 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share; and, (2) certain adjustment provisions in previous warrant agreements issued in June and July 2007, were triggered and pursuant to the adjustment provisions, the exercise price of previously issued warrants to purchase 7,500,000 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share.

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 and on February 28, 2008, the line of credit agreement was amended to increase the borrowing to $700,000. As condition to and as additional consideration for SAIC’s agreement to lend the funds to the Company, the Company (i)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; (ii) reduced the exercise price on 2,200,000 existing warrants and options issued to SAIC and Stephen Sperco, and their assigns, from the current per share exercise prices of $0.17, $0.34, $0.75 and $1.00 to $0.0333334 per share; and (iii) granted 1,000,000 new warrants to SAIC with an exercise price of $0.0333334 per share that expire February 28, 2013. The fair value of the 1,000,000 warrants was $109,028 on the date of issuance. Because the warrants were granted to a related party and the exercise price on the grant date was below the market price of our stock, we expensed $109,028 in February 2008 related to this transaction.

In October 2008, we issued 1,150,000 unrestricted shares and 100,000 restricted shares of common stock to Stephen Sperco, our CEO as a result of his exercise of stock options on October 17, 2008. The Company satisfied related party accrued expenses and interest owed to Mr. Sperco amounting to $38,334 and $3,334, respectively upon the exercise of these stock options.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

The Nevada Revised Statutes Section 78.7502 provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) Is not liable pursuant to NRS 78.138; or (b) Acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person is liable pursuant to NRS 78.138 or did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or, (b) Acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless

and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense.

The Nevada Revised Statutes Section 78.751 provides that any discretionary indemnification pursuant to NRS 78.7502, unless ordered by a court or advanced pursuant to Section 78.751, may be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (a) By the stockholders; (b) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding; (c) If a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (d) If a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. The articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. The indemnification pursuant to NRS 78.7502 and advancement of expenses authorized in or ordered by a court pursuant to this section: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to NRS 78.7502 or for the advancement of expenses made pursuant to subsection 2, may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action, and, (b) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person.

Our Articles of Incorporation at Article VIII provides that the Corporation shall, to the fullest extent permitted by the Nevada General Corporation Law, as the same may be amended and supplemented, indemnify any an all persons whom it shall have power to indemnify under said Law from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said Law, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner in which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. To the extent that a director, officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Any indemnification under this Article (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in this Article. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. Expenses (including attorneys' fees) incurred by an officer or director in defending in a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized by this Article. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article shall not be deemed exclusive of any other rights to which those seeking

indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. The Company shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under this Article. For purposes of this section references to "the Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained in this Article or elsewhere in these Bylaws, shall operate to indemnify any director or officer if such indemnification is contrary to law, either as a matter of public policy, or under the provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or any other applicable state or Federal law.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the forgoing provisions or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable.

FORM S-1

PART II--INFORMATION NOT REQUIRED IN PROSPECTUS

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

		Amount Paid or
		To be Paid (1)

SEC registration fee	$	508
Printing and engraving expenses		1,000
Attorneys' fees and expenses		1,000
Accountants' fees and expenses		2,000
Transfer agent's and registrar's fees and expenses		1,000
Miscellaneous		1,000

Total	$	6,508

(1) The amounts set forth are all estimates, except for the SEC registration fee.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Nevada Revised Statutes, law, our Articles of Incorporation and our By-Laws provide that we may indemnify our officers and directors against losses or liabilities which arise in their corporate capacity. The effect of these provisions could be to dissuade lawsuits against our officers and directors.

Our Bylaws at Article X provide that the: The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner in which he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. To the extent that a director, officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Any indemnification under this Article (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in this Article. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders. Expenses (including attorneys' fees) incurred by an officer or director in defending in a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized by this Article. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another

capacity while holding such office. The Company shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under this Article. For purposes of this section references to "the Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained in this Article or elsewhere in these Bylaws, shall operate to indemnify any director or officer if such indemnification is contrary to law, either as a matter of public policy, or under the provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or any other applicable state or Federal law.

RECENT SALES OF UNREGISTERED SECURITIES

During the period from January 1, 2006 through April 23, 2009, we issued unregistered securities in transactions summarized below.

During the first quarter of 2006 we issued 193,333 shares of stock, warrants for 193,333 shares of our common stock at a exercise price of $1.00 per share and warrants for 96,667 shares of our common stock at an exercise price of $1.50 per share, for cash consideration of $145,000 in connection with a private placement. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

During the first quarter of 2006 we issued 1,418,681 shares of our common stock in conjunction with the conversion of 110.242 shares of our Series A Convertible Non-Redeemable Preferred stock. As a result of this transaction, there are no remaining shares of our Series A Convertible Non-Redeemable Preferred stock outstanding. We issued these securities in reliance on Section 4(2) of the Act. This was a transaction by us as issuer that did not involve a public offering. We believe that the purchaser was knowledgeable about our operations and financial condition. We believe that the purchaser had the knowledge and experience in financial and business matters which allowed it to evaluate the merits and risk of receipt of our securities.

In January 2006 we issued an option to purchase 546,600 shares of our common stock at an exercise price of $0.75 per share to an employee. The option has a valuation of $332,235 and expires in January 2011. We issued these securities in reliance on Section 4(2) of the Act. This was a transaction by us as issuer that did not involve a public offering. We believe that the purchaser was knowledgeable about our operations and financial condition. We believe that the purchaser had the knowledge and experience in financial and business matters which allowed it to evaluate the merits and risk of receipt of our securities.

During February 2006 we issued 200,000 shares of restricted common stock to a consultant for services rendered. The common stock had a market value of $104,000 on the date of issuance. We issued these securities in reliance on Section 4(2) of the Act. This was a transaction by us as issuer that did not involve a public offering. We believe that the purchaser was knowledgeable about our operations and financial condition. We believe that the purchaser had the knowledge and experience in financial and business matters which allowed it to evaluate the merits and risk of receipt of our securities.

In February 2006 we issued 50,000 shares of common stock to one investor upon the conversion of the investor's warrant. We received proceeds of $50,000 from the exercise of the warrant. We issued these securities in reliance on Section 4(2) of the Act. This was a transaction by us as issuer that did not involve a public offering. We believe that the purchaser was knowledgeable about our operations and financial condition. We believe that the purchaser had the knowledge and experience in financial and business matters which allowed it to evaluate the merits and risk of receipt of our securities.

In March 2006 we issued 80,000 shares of stock, warrants for 80,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 40,000 shares of our common stock at an exercise price of $1.00 per share, for cash consideration of $60,000 in connection with a private placement. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

On March 31, 2006 we closed on the aforementioned private placement of our common stock. In conjunction with this transaction, certain adjustment provisions contained in the Company's convertible notes payable warrants issued in September 2005 were triggered. Pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 666,667 shares of our common stock at $1.00 per share was reduced to $0.75 per share. We are required to file a registration statement for the underlying shares within 90 days from the date the transaction closed.

In March 2006 a consultant returned, and the Company cancelled, 133,000 shares of common stock that was previously issued to the consultant as compensation. The consultant also agreed to forfeit an option to purchase 41,250 shares of our common stock at $1.00 per share. The fair value of the stock cancelled was $87,779. The company reversed $26,290 of compensation expense related to the option which was previously recorded.

In April 2006 we exercised our option to extend the due date of the aforementioned convertible notes payable by 90 days to July 31, 2006. As a result, we issued warrants to purchase 349,866 shares of our common stock at $0.75 per share to the note holders, as required by the note agreement. As a result, we recorded interest expense of $177,735 in connection with this transaction. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In May 2006 we issued 160,000 shares of stock, warrants for 160,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 80,000 shares of our common stock at an exercise price of $1.00 per share, for cash consideration of $120,000 in connection with a private placement. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. We paid one broker-dealer a sales commission in this transaction. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In May 2006 we issued an option to purchase 5,000 shares of our common stock at an exercise price of $0.75 per share to an employee. The option had a market value of $2,540 on the date of grant, vests immediately and expires in May 2011. We expensed $2,540 during the quarter ended June 30, 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In May and June 2006 we issued 105,883 shares of common stock valued at $68,000 for consulting services. These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In May 2006, the employment contract of an employee expired and an option to purchase 233,336 shares of our common stock at $1.00 per share was forfeited. Bluegate reversed $35,307 of compensation expense related to the option which was previously recorded during the quarter ended March 31, 2006.

In June 2006, we issued warrants to purchase 48,000 shares of our common stock at an exercise price of $0.75 per share and warrants to purchase 24,000 shares of our common stock at an exercise price of $1.00 per share to two vendors. The warrants had a market value of $43,756 on the date of grant and expire in June 2011. We expensed $43,756 during the quarter ended June 30, 2006 related to these warrants. In November 2006, in conjunction with a settlement of debt, a vendor agreed to forfeit warrants to purchase 24,000 shares of our common stock at an exercise price of $0.75 per share and warrants to purchase 12,000 shares of our common stock at an exercise price of $1.00 per share. Additionally, the compensation expense recorded relating to the issuance of the warrants to the other vendor was revised based upon the actual date of the issuance of the warrants. The effort of these two transactions was a reduction of $8,220 of compensation expense that was previously recorded during the quarter ended June 30, 2006. These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In June 2006 we issued an option to purchase 600,000 shares of our common stock at an exercise price of $0.75 per share to an employee. The option had a market value of $328,759 on the date of grant, vests through June 2008 and expires in June 2011. We expensed $13,698 during the quarter ended June 30, 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

On June 30, 2006, in conjunction with the transaction to extend Bluegate’s obligations pursuant to the Registration Rights Agreement, certain adjustment provisions contained in Bluegate’s convertible notes agreements and warrant agreements issued in September 2005 were triggered further. Pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 666,667 shares and 349,866 shares of our common stock at $0.75 per share was reduced to $0.50 per share. These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

On June 30, 2006 we issued 216,667 shares of our common stock, warrants for 216,667 shares of our common stock at an exercise price of $0.75 per share and warrants for 108,333 of our common stock at an exercise price of $1.00 per share, for consideration of the investors agreement to extend Bluegate’s obligations pursuant to the Registration Rights Agreement until November 30, 2006. We expensed $350,743 in connection with this transaction. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

On July 3, 2006 we issued a warrant to purchase 100,000 shares of our common stock at an exercise price of $0.50 per share in connection with a loan. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In July 2006 we exercised our option to extend the due date of the aforementioned convertible notes payable by 90 days to October 31, 2006. As a result, we issued warrants to purchase 358,265 shares of our common stock at $0.50 per share to the note holders, as required by the note agreement. As a result, we recorded interest expense of $214,328 in connection with this transaction. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In July 2006 we issued an option to purchase 550,000 shares of our common stock at an exercise price of $0.75 per share to an employee. The option had a market value of $328,811 on the date of grant and expires in July 2011. We expensed $12,178 in July 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In August 2006 we issued an option to purchase 1,200,000 shares of our common stock at an exercise price of $0.60 per share to an employee. The option had a market value of $717,682 on the date of grant and expires in August 2011. We expensed $55,206 in August 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

In August 2006 we issued an option to purchase 340,000 shares of our common stock at an exercise price of $0.60 per share to an employee. The option had a market value of $203,343 on the date of grant and expires in August 2011. We expensed $15,642 in August 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In August 2006 we issued an option to purchase 170,000 shares of our common stock at an exercise price of $0.60 per share to an employee. The option had a market value of $101,672 on the date of grant and expires in August 2011. We expensed $7,821 in August 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In August 2006, we issued an option to purchase 150,000 shares of our common stock at an exercise price of $0.62 per share to a director of the company. The option had a market value of $92,701 on the date of grant and expires in August 2011. We expensed $92,701 during the quarter ended September 30, 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In September 2006 we issued an option to purchase 232,250 shares of our common stock at an exercise price of $0.62 per share to a group of employees. The option had a market value of $208,469 on the date of grant and expires in September 2011. We expensed $208,469 during the quarter ended September 30, 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In September 2006, we issued an option to purchase 200,000 shares of our common stock at an exercise price of $0.71 per share to an employee. The option had a market value of $141,543 on the date of grant, vests through August 2008 and expires in September 2011. We expensed $5,898 during the quarter ended September 30, 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In September 2006 we issued an option to purchase 50,000 shares of our common stock at an exercise price of $0.80 per share to an employee. The option had a market value of $39,871 on the date of grant and expires in September 2011. We expensed $1,661 during the quarter ended September 30, 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

During the quarter ended September 30, 2006, we issued 990,000 shares of stock, warrants for 990,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 495,000 shares of our common stock at an exercise price of $1.00 per share, for cash consideration of $495,000 in connection with a private placement. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

On September 30, 2006, we issued 407,407 shares of stock as additional consideration for the purchase of Trilliant Corporation’s assets, at $0.74. As a result of this transaction, $29,819 was allocated to goodwill and $271,662 was expensed during the quarter ended September 30, 2006. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

During the quarter ended December 31, 2006, we issued 1,200,000 shares of stock, warrants for 1,200,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 600,000 shares of our common stock at an exercise price of $1.00 per share, for cash consideration of $600,000 in connection with a private placement. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In November 2006, we issued warrants to purchase 28,000 shares of our common stock at an exercise price of $0.75 per share and warrants to purchase 21,000 shares of our common stock at an exercise price of $1.00 per share to two vendors. The warrants had a market value of $48,366 on the date of grant and expire in November 2011. We expensed $48,366 in November 2006 related to these warrants. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In October 2006, we issued 66,000 shares of common stock for the conversion of a note payable plus accrued interest amounting to $33,000. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In November 2006, we issued 422,000 shares of stock, warrants for 422,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 211,000 shares of our common stock at an exercise price of $1.00 per share, for the conversion of debt from two of our directors totaling $211,000. The warrants vest immediately and expire in November 2011. The excess of the fair value of the stock and warrants issued over the debt converted totaled $831,607 and was recorded as compensation expense. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In November 2006, we issued 240,000 shares of stock, warrants for 240,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 120,000 shares of our common stock at an exercise price of $1.00 per share, for the extinguishment of outstanding debt to a consultant totaling $120,000. The warrants vest immediately and expire in November 2011. The excess of the fair value of the stock and warrants issued over the debt extinguished was $472,952 and was recorded as a loss on debt extinguishment. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

In November 2006, we issued an option to purchase 170,000 shares of our common stock at an exercise price of $0.74 per share to an employee. The option had a market value of $150,856 on the date of grant, vests through April 2009 and expires in November 2011. We expensed $10,058 during the quarter ended December 31, 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In November 2006 we issued an option to purchase 1,500,000 shares of our common stock at an exercise price of $0.99 per share to an employee. The option had a market value of $1,480,220 on the date of grant and expires in November 2011. We expensed $1,480,220 in November 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

In November 2006 we issued an option to purchase 600,000 shares of our common stock at an exercise price of $0.99 per share to an employee. The option had a market value of $592,088 on the date of grant and expires in November 2011. We expensed $98,681 in November 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

In December 2006 we issued an option to purchase 1,200,000 shares of our common stock at an exercise price of $0.95 per share to an employee. The option had a market value of $1,136,330 on the date of grant and expires in December 2011. We expensed $47,347 in December 2006 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

In January 2007, we issued an option to purchase 50,000 shares of our common stock at an exercise price of $0.80 per share to an employee. The option had a market value of $39,871 on the date of grant, vests through December 2008 and expires in January 2012. We expensed $4,983 in the quarter ending March 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In February 2007, we issued an option to purchase 100,000 shares of our common stock at an exercise price of $0.75 per share to an employee. The option had a market value of $74,759 on the date of grant, vested immediately and expires in January 2012. We expensed $74,759 in the quarter ending March 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In February 2007, we issued an option to purchase 75,000 shares of our common stock at an exercise price of $0.75 per share to an employee. The option had a market value of $56,069 on the date of grant, vests through January 2008 and expires in February 2012. We expensed $9,344 in the quarter ending March 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In February 2007, we issued an option to purchase 50,000 shares of our common stock at an exercise price of $0.86 per share to an employee. The option had a market value of $42,862 on the date of grant, vested immediately and expires in February 2012. We expensed $42,862 in the quarter ending March 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In February 2007, we issued 7,416 shares of common stock valued at $6,600 for consulting services. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In February and March 2007, we issued 800,000 shares of stock, warrants for 800,000 shares of our common stock at an exercise price of $0.75 per share and warrants for 400,000 shares of our common stock at an exercise price of $1.00 per share, for cash consideration of $300,000 in connection with a private placement. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In February 2007, we issued 90,000 shares of stock, warrants to purchase 90,000 shares of our common stock at an exercise price of $0.75 per share and warrants to purchase 45,000 shares of our common stock at an exercise price of $1.00 per share, for prior year accounts payable of $15,000 and current year services of $131,145 to a consultant. The warrants vest immediately and expire in February 2012. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

In March 2007, we issued an option to purchase 50,000 shares of our common stock at an exercise price of $0.82 per share to an employee. The option had a market value of $40,868 on the date of grant, vested immediately and expires in March 2012. We expensed $40,868 in the quarter ending March 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In March 2007 we issued 100,000 shares of common stock valued at $85,000 for consulting services. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In April 2007, we issued an option to purchase 50,000 shares of our common stock at an exercise price of $0.80 per share to an employee. The option had a market value of $39,871 on the date of grant, vests through January 2008 and expires in April 2012. We expensed $3,987 during the month of April 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In May 2007, we issued 60,000 shares of stock, warrants to purchase 60,000 shares of our common stock at an exercise price of $0.75 per share and warrants to purchase 30,000 shares of our common stock at an exercise price of $1.00 per share, for services of $41,705 to a consultant. The warrants vest immediately and expire in May 2012. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor was an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities.

In May 2007, we paid liquidated damages of $29,250 by issuing 36,585 restricted shares of our common stock to six investors for consideration for the delay in filing the registration statement pursuant to the Registration Rights Agreement expected to have been filed by November 30, 2006. The $29,250 was recorded as compensation expense. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In May 2007, we issued an option to purchase 10,000 shares of our common stock at an exercise price of $0.50 per share to an employee. The option had a market value of $4,482 on the date of grant, vested immediately and expires in May 2012. We expensed $4,482 in the month of May 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In June 2007, we issued an option to purchase 150,000 shares of our common stock at an exercise price of $0.50 per share to a director. The option had a market value of $74,759 on the date of grant, vested immediately and expires in June 2012. We expensed $74,759 in the quarter ending June 30, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In June 2007, we issued an option to purchase 25,000 shares of our common stock at an exercise price of $0.50 per share to an employee. The option had a market value of $12,460 on the date of grant, vested immediately and expires in June 2012. We expensed $12,460 in the quarter ending June 30, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In June 2007 Bluegate’s board of directors approved the issuance of 48 shares of Series C voting convertible non-redeemable preferred stock with a par value of $0.001 per share and a liquidation value of $12,500 per share. Each share of Series C convertible preferred stock may be converted, at the option of the shareholder, into 25,000 shares of common stock or a total of 1,200,000 shares of common stock. Each share of preferred stock has 15 times the number of votes its conversion-equivalent number of shares of common stock, or 375,000 votes per share of preferred stock. The 48 shares of preferred stock will have an aggregate of 18 million votes.

Effective June 28, 2007, we sold 8 shares of Series C preferred stock for $100,000 in cash to SAI Corporation ("SAI"), a corporation controlled by Stephen Sperco ("Sperco"). We also granted to SAI warrants to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. On the same day we sold 40 shares of Series C preferred stock for $500,000 in cash to Sperco. We also granted to Sperco warrants to purchase up to 5,000,000 shares of our common stock at an exercise price of $0.17 per share expiring in June 2012. Mr. Sperco is our CEO and a director. These transactions were made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In July 2007, Manfred Sternberg, a Director, gave us $200,000 in cash for the purchase of 400,000 shares of common stock at a purchase price of $0.50 per share and for the purchase of 1,000,000 warrants to purchase common stock at an exercise price of $0.17 per share expiring in July 2012. We issued these securities in reliance on Section 4(2) of the Securities Act. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions.

In July 2007, William Koehler, a Director, gave us $50,000 in cash for the purchase of 100,000 shares of common stock at a purchase price of $0.50 per share and for the purchase of 250,000 warrants to purchase common stock at an exercise price of $0.17 per share expiring in July 2012. We issued these securities in reliance on Section 4(2) of the Securities Act. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions.

In July 2007, Albert Koehler, the brother of William Koehler, gave us $50,000 in cash for the purchase of 100,000 shares of common stock at a purchase price of $0.50 per share and for the purchase of 250,000 warrants to purchase common stock at an exercise price of $0.17 per share expiring in July 2012. We issued these securities in reliance on Section 4(2) of the Securities Act. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions.

In July 2007, we issued an option to purchase 10,000 shares of our common stock at an exercise price of $0.39 per share to an employee. The option had a market value of $3,496 on the date of grant, vested immediately and expires in July 2012. We expensed $3,496 in the month of July 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In August 2007, we paid liquidated damages of $69,405 by issuing 155,143 restricted shares of our common stock to investors for consideration for the delay in filing the registration statement pursuant to the Registration Rights Agreement expected to have been filed by June 30, 2007. The $69,405 was recorded as compensation expense. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In September 2007, as a result of the preferred stock transaction described on June 28, 2007, certain adjustment provisions in Bluegate’s previous convertible note agreements and warrant agreements issued in September 2005 and subsequently, were triggered. Pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 1,534,800 shares of our common stock at $0.50 per share was reduced to $0.17 per share and further reduced in February 2008 to $0.0333334.

In September 2007, we issued 100,000 shares of our common stock to a consultant to settle a prior year accounts payable. The common stock had a market value of $25,002 based on the closing price of the stock on the date of grant. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

Effective September 30, 2007, we recorded the issuance of 419,753 shares of common stock valued at $33,580 to Trilliant Corporation in accordance with the asset sale and purchase agreement dated September 15, 2005, pertaining to the acquired business’ revenue after the second year. As a result of this transaction, $33,580 was recorded as an expense. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were accredited investors as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In September 2007, we issued an option to purchase 10,000 shares of our common stock at an exercise price of $0.19 per share to an employee. The option had a market value of $1,703 on the date of grant, vested immediately and expires in September 2012. We expensed $1,703 in the quarter ending September 30, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In September 2007, we issued an option to purchase 5,000 shares of our common stock at an exercise price of $0.25 per share to an employee. The option had a market value of $837 on the date of grant, vests through December 2007 and expires in September 2012. We expensed $837 in the quarter ending September 30, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

During the fourth quarter ended December 31, 2007, we issued 200,000 shares of our common stock valued at $26,000 as payment to four consultants for services rendered. We expensed $26,000 in 2007 related to this transaction. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

During the fourth quarter ended December 31, 2007 we issued an option to purchase 10,000 shares of our common stock at an exercise price of $0.25 per share to an employee. The option had a market value of $1,208 on the date of grant, vests through October 2009 and expires in November 2012. We expensed $100 in the quarter ending December 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

During the fourth quarter ended December 31, 2007 we issued an option to purchase 37,000 shares of our common stock at an exercise price of $0.25 per share to an employee. The option had a market value of $4,125 on the date of grant, vested immediately and expires in December 2012. We expensed $4,125 in the quarter ending December 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

During the fourth quarter ended December 31, 2007 we issued an option to purchase 100,000 shares of our common stock at an exercise price of $0.17 per share to an employee. The option had a market value of $15,240 on the date of grant, vested immediately and expires in December 2012. We expensed $15,240 in the quarter ending December 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

During the fourth quarter ended December 31, 2007 we issued an option to purchase 100,000 shares of our common stock at an exercise price of $0.17 per share to a director. The option had a market value of $15,240 on the date of grant, vested immediately and expires in December 2012. We expensed $15,240 in the quarter ending December 31, 2007 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In December 2007, 8,601,400 previously issued common stock options to certain employees with exercise prices ranging from $0.39 to $6.00 were reduced to $0.34. In February 2008, as a result of the transaction described below, the exercise price 1,200,000 options were reduced $0.0333334.

In January 2008, we issued 170,000 shares of common stock, warrants for 130,000 shares of our common stock at an exercise price of $0.17 per share, warrants for 40,000 shares of our common stock at an exercise price of $1.00 per share for $85,000 in connection with a private placement of our securities. The relative fair value of the stock and warrants in these transactions were $70,223 and $14,777, respectively. As part of the $85,000 consideration, 510,000 previously issued warrants with exercise prices ranging from $0.75 to $1.25 were reduced to $0.17. The expiration date for 100,000 previously issued warrants was extended to January 22, 2011. All other terms of the warrant agreements remained the same. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

In January 2008, we issued an option to purchase 60,000 shares of our common stock at an exercise price of $0.25 per share to an employee. The option had a market value of $7,245 on the date of grant, vests through December 2009 and expires in January 2013. We expensed $906 in the quarter ending March 31, 2008 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In January 2008, we issued an option to purchase 10,000 shares of our common stock at an exercise price of $0.25 per share to an employee. The option had a market value of $840 on the date of grant, vests through December 2008 and expires in January 2013. We expensed $210 in the quarter ending March 31, 2008 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In January 2008, we issued an option to purchase 5,000 shares of our common stock at an exercise price of $0.25 per share to an employee. The option had a market value of $465 on the date of grant, vests through December 2008 and expires in January 2013. We expensed $116 in the quarter ending March 31, 2008 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

In February 2008, we issued an option to purchase 50,000 shares of our common stock at an exercise price of $0.25 per share to an employee. The option had a market value of $3,743 on the date of grant, vested immediately and expires in February 2011. We expensed $3,743 in the quarter ending March 31, 2008 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

On February 14, 2008, we finalized and consummated a transaction with a deemed effective date of February 1, 2008 whereby we issued 9,150,000 shares of stock for the conversion of related party debts of directors totaling $305,000. The conversion and purchase price per share was $0.0333334. The excess of the fair value of the stock over the debt converted and shares purchased totaled $518,500 and was recorded as compensation expense. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. This transaction did not involve a public offering. The investors were knowledgeable about our operations and financial condition. The investors were an accredited investor as defined in Regulation D and had knowledge and experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these securities.

On February 14, 2008, we finalized and consummated a transaction with a deemed effective date of February 1, 2008 whereby we issued 300,000 shares of stock to two managers for $10,000. The purchase price per share was $0.0333334. The excess of the fair value of the stock over the shares purchased totaled $17,000 and was recorded as compensation expense. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

As a result of the February 14, 2008 transaction described above: (i) certain adjustment provisions in a previous convertible note agreements and warrant agreements issued in September 2005 and subsequent, were triggered and pursuant to the adjustment provisions, the exercise price of the previously issued warrants to purchase 1,534,800 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share; and, (ii) certain adjustment provisions in previous warrant agreements issued in June and July 2007, were triggered and pursuant to the adjustment provisions, the exercise price of previously issued warrants to purchase 7,500,000 shares of our common stock at $0.17 per share was reduced to $0.0333334 per share.

On February 28, 2008, we issued a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $0.0333334 per share that expire February 28, 2013. The fair value of the 1,000,000 warrants was $109,028 on the date of issuance. Because the warrants were granted to a related party and the exercise price on the grant date was below the market price of our stock, we expensed $109,028 in February 2008 related to this transaction. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. As condition to and as additional consideration for the related party’s agreement to lend funds to the Company, the Company granted the related party a security interest in its assets of the Company and reduced the exercise price on 2,200,000 existing warrants and options issued to the related parties, and their assigns, from the current per share exercise prices of $0.17, $0.34, $0.75 and $1.00 to $0.0333334 per share.

In March 2009, we issued an option to purchase 50,000 shares of our common stock at an exercise price of $0.10 per share to an employee. The option had a market value of $1,769 on the date of grant, vested immediately and expires in March 2012. We expensed $1,769 in the quarter ending March 31, 2009 related to this option. This transaction was made in reliance upon exemptions from registration under Section 4(2) of the Securities Act. Each certificate issued for unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

ITEM 16	EXHIBITS

Exhibit
Number	Description

3.1	Articles of Incorporation as amended - Incorporated by reference to Form SB-2 filed June 3, 2005.

3.2	By-laws as amended - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.1	Form of common stock - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.2	Form of convertible debenture - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.3	Form of option Agreement - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.4	Form of warrant Agreement - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.5	Form of preferred Stock Certificate - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.6	Form of convertible Debt Agreement - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.7	Designation of Series A preferred stock - Incorporated by reference to Form SB-2 filed June 3, 2005.

4.8	Form of 10% Convertible Promissory Note - Incorporated by reference to Form 8-K filed September 30, 2005.

4.9	Form of Detachable Warrant - Incorporated by reference to Form 8-K filed September 30, 2005.

4.10	Stock Option Agreement of David Draper - Incorporated by reference to Form 10-QSB for the quarter ended June 30, 2006.

4.11	Stock Option Agreement of William E. Koehler - Incorporated by reference to Form 10-QSB for the quarter ended June 30, 2006.

4.12	Stock Option Agreement of Larry Walker - Incorporated by reference to Form 10-QSB for the quarter ended June 30, 2006.

4.13	Stock Option Agreement of Gilbert Gertner - Incorporated by reference to Form 10-QSB for the quarter ended September 30, 2006.

5.1	Opinion re: legality - provided herewith.

10.1	Employment Agreement of Manfred Sternberg - Incorporated by reference to Form SB-2 filed June 3, 2005.

10.2	Employment Agreement of Charles Leibold - Incorporated by reference to Form 8-K filed June 7, 2006.

10.3	Employment Agreement of William Koehler - Incorporated by reference to Form 8-K filed September 28, 2005.

10.4	Employment Agreement of Larry Walker - Incorporated by reference to Form 8-K filed September 28, 2005.

10.5	Asset Sale and Purchase Agreement among Registrant, Trilliant Technology Group, Inc., Trilliant Corporation and William Koehler - Incorporated by reference to Form 8-K filed September 28, 2005.

10.6	Employment Agreement of Richard Yee - Incorporated by reference to Form SB-2 filed August 15, 2007.

10.7	Employment Agreement of Stephen Sperco - Incorporated by reference to Form 8-K filed December 31, 2006.

10.8	Stock Option Agreement of Stephen Sperco - Incorporated by reference to Form 8-K filed December 31, 2006.

10.9	Designation of Series C preferred stock - Incorporated by reference to Form 8-K filed July 3, 2007.

10.10	Form of preferred stock certificates issued to SAI Corporation and Stephen Sperco - Incorporated by reference to Form 8-K filed July 3, 2007.

10.11	Form of preferred stock purchase agreement of SAI Corporation - Incorporated by reference to Form 8-K filed July 3, 2007.

10.12	Form of preferred stock purchase agreement of Stephen Sperco - Incorporated by reference to Form 8-K filed July 3, 2007.

10.13	Form of warrant agreement of SAI Corporation - Incorporated by reference to Form 8-K filed July 3, 2007.


10.14	Form of warrant agreement of Stephen Sperco - Incorporated by reference to Form 8-K filed July 3, 2007.

10.15	Form of warrant agreement of Gilbert Gertner - Incorporated by reference to Form 8-K filed July 3, 2007.

10.16	Form of common stock purchase agreement of Manfred Sternberg - Incorporated by reference to Form SB-2 filed August 15, 2007.

10.17	Form of common stock purchase agreement of William Koehler - Incorporated by reference to Form SB-2 filed August 15, 2007.

10.18	Form of common stock purchase agreement of Albert Koehler - Incorporated by reference to Form SB-2 filed August 15, 2007.

10.19	Form of warrant agreement of Manfred Sternberg - Incorporated by reference to Form SB-2 filed August 15, 2007.

10.20	Form of warrant agreement of William Koehler - Incorporated by reference to Form SB-2 filed August 15, 2007.

10.21	Form of warrant agreement of Albert Koehler - Incorporated by reference to Form SB-2 filed August 15, 2007.

10.22	Form of common stock agreement of Stephen Sperco, Manfred Sternberg, William Koehler, Dale Geary, Larry Walker and Charles Leibold – Incorporated by reference to Form 8-K filed February 19, 2008.

10.23	Form of warrant agreement and Promissory Note and Security Agreement of SAI Corporation – Incorporated by reference to Form 8-K filed March 3, 2008.

21.1	Subsidiaries - provided herewith.

23.1	Consent of Independent Registered Public Accounting Firm-provided herewith.

23.2	Consent of Counsel (see Exhibit 5.1)

UNDERTAKINGS

a.	Rule 415 Offering.

The undersigned registrant hereby undertakes:

1.	To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

i.	To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

ii.

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.

iii.	To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

----- That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

2.	To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

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4.	That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

i.	If the registrant is relying on Rule 430B (230.430B of this chapter):

A.	Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

ii.

If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

i.	Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

ii.	Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

iii.	The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

iv.	Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

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h.	Request for acceleration of effective date or filing of registration statement becoming effective upon filing.

1.	Any provision or arrangement exists whereby the registrant may indemnify a director, officer or controlling person of the registrant against liabilities arising under the Securities Act, or

The underwriting agreement contains a provision whereby the registrant indemnifies the underwriter or controlling persons of the underwriter against such liabilities and a director, officer or controlling person of the registrant is such an underwriter or controlling person thereof or a member of any firm which is such an underwriter, and

3.	The benefits of such indemnification are not waived by such persons:

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

i.	Include the following in a registration statement permitted by Rule 430A under the Securities Act of 1933:

The undersigned registrant hereby undertakes that:

For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on April 28, 2009.

BLUEGATE CORPORATION

	(signed)	______________________
April 28, 2009	By: /s/	Stephen J. Sperco
		Stephen J. Sperco
		CEO

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

	Signature	Title	Date

(signed)	_____________________
By:/s/	Stephen J. Sperco	Director and Chief Executive Officer	April 28, 2009
	Stephen J. Sperco

	_____________________
	Manfred Sternberg	Director and Chief Strategy Officer	______________

(signed)	_____________________
By:/s/	William Koehler	Director, President and COO	April 28, 2009
	William Koehler

(signed)	_____________________
By:/s/	Dale Geary	Director	April 28, 2009
	Dale Geary

(signed	_____________________
By:/s/	Charles E. Leibold	CFO and Principal Accounting Officer	April 28, 2009
	Charles E. Leibold