-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QgFi8mqTHW5sCXU/VCcI3JO67jpO5WIilTW4h5KMIfg4GF1EFiZVW52ktwkFeBGM cGp2sRqxoT7QRK7UJTtpPQ== 0001140361-05-009986.txt : 20051121 0001140361-05-009986.hdr.sgml : 20051121 20051121154838 ACCESSION NUMBER: 0001140361-05-009986 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051121 DATE AS OF CHANGE: 20051121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUEGATE CORP CENTRAL INDEX KEY: 0000768216 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870565948 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22711 FILM NUMBER: 051218013 BUSINESS ADDRESS: STREET 1: 701 NORTH POST OAK ROAD STREET 2: SUITE 630 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7136827400 MAIL ADDRESS: STREET 1: 701 NORTH POST OAK ROAD STREET 2: SUITE 630 CITY: HOUSTON STATE: TX ZIP: 77024 FORMER COMPANY: FORMER CONFORMED NAME: CRESCENT COMMUNICATIONS INC DATE OF NAME CHANGE: 20010921 FORMER COMPANY: FORMER CONFORMED NAME: BERENS INDUSTRIES INC DATE OF NAME CHANGE: 19990823 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL AIR CORP DATE OF NAME CHANGE: 19970521 10QSB 1 body.txt BLUEGATE 10QSB 09-30-2005 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 BLUEGATE CORPORATION (Exact name of registrant as specified in its charter) Commission file number: 0-22711 Nevada 76-0640970 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 701 North Post Oak, Road, Suite 630, Houston, Texas 77024 (Address of Principal Executive Office) (Zip Code) (713) 686-1100 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each the issuer's classes of common equity, as of the latest practicable date: 5,651,567 common shares outstanding as of November 7, 2005. Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X] ================================================================================
BLUEGATE CORPORATION TABLE OF CONTENTS __________ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Unaudited Consolidated Financial Statements. . . . . . . . . . . . . . F-1 Consolidated Balance Sheets as of September 30, 2005 (Unaudited) and December 31, 2004 . . . . . . . . . . . . . . . . . . . . . F-2 Unaudited Consolidated Statements of Operations for three months and nine months ended September 30, 2005 and 2004 . . . F-3 Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004. . . . . . . . . . . . F-4 Notes to Unaudited Consolidated Financial Statements. . . . . . . F-6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . I-1 ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES . . . . . . . . . . . I-5 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . II-1 ITEM 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . II-1 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . II-2 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3 CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-4
ITEM 1. FINANCIAL STATEMENTS BLUEGATE CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 2005 2004 ASSETS (UNAUDITED) ------ --------------- -------------- Current assets: Cash and cash equivalents $ 414,755 $ 3,708 Accounts receivable, net 384,553 209,856 Inventory 88,165 - Note receivable 30,000 146,814 Prepaid expenses and other 24,863 29,429 --------------- -------------- Total current assets 942,336 389,807 Property and equipment, net 146,471 73,458 Other assets 11,460 - --------------- -------------- Total assets $ 1,100,267 $ 463,265 =============== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT - ------------------------------------- Current liabilities: Convertible notes payable, net of unamortized discount of $491,830 $ 33,170 $ 389,018 Note payable 12,800 2,800 Accounts payable 605,317 725,456 Accrued liabilities 267,543 296,637 Deferred revenue 639,431 217,073 Advance on purchase of equity securities 265,000 - --------------- -------------- Total current liabilities 1,823,261 1,630,984 --------------- -------------- Commitments and contingencies - - Stockholders' deficit: Series A Convertible Non-Redeemable Preferred stock, $.001 par value, 20,000,000 shares authorized, 110,242 issued and outstanding, $5,000 per share liquidation preference($551,210 aggregate liquidation preference) - - Series B Convertible Non-Redeemable Preferred stock, $.001 par value, 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.001 par value, 50,000,000 shares authorized, 5,651,567 and 2,548,809 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 5,652 2,549 Additional paid-in capital 10,056,775 6,184,450 Subscription receivable (15,007) (11,141) Deferred compensation (48,053) - Accumulated deficit (10,722,361) (7,343,577) --------------- -------------- Total stockholders' deficit (722,994) (1,167,719) --------------- -------------- Total liabilities and stockholders' deficit $ 1,100,267 $ 463,265 =============== ==============
F-1
BLUEGATE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ------------------------ 2005 2004 2005 2004 ----------- ---------- ------------ ---------- Service revenue $ 665,775 362,235 $ 1,541,542 734,412 Cost of services 242,676 154,527 664,407 379,158 ----------------------- ------------------------ Gross margin 423,099 207,708 877,135 355,254 Selling, general and administrative expenses 1,185,689 303,616 3,237,415 899,151 ----------------------- ------------------------ Loss from operations (762,590) (95,908) (2,360,280) (543,897) Interest income - 2,611 (2,932) 2,611 Loss on conversion of notes payable to common stock 892,882 Interest expense 47,681 (8,425) 118,053 (25,231) Other income (14,153) - (10,501) - Other expense (1,701) - - ----------------------- ------------------------ Loss from continuing operations (822,723) (101,722) (3,378,784) (566,517) ----------------------- ------------------------ Discontinued operations: Gain from sale of discontinued broadband internet segment - - - 643,627 Loss from operation of discontinued broadband internet segment - - - (511,000) ----------------------- ------------------------ Income from discontinued operations - - - 132,627 ----------------------- ------------------------ Net income (loss) $ (822,723) (101,722) $(3,378,784) (433,890) ======================= ======================== Basic and diluted income (loss) per common share: Loss from: Continuing operations $ (0.15) (0.05) $ (0.79) (0.28) Discontinued operations - - - (0.06) Net loss $ (0.15) (0.05) $ (0.79) (0.21) Weighted average shares outstanding 5,313,643 2,259,188 4,251,452 2,031,295
F-2
BLUEGATE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED NINE MONTHS ENDED -------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2005 2004 --------------- --------------- Cash flows from operating activities: Net cash used in continuing operations (576,178) (527,844) Net cash used in discontinued operations - (522,863) --------------- --------------- Net cash used by operating activities (576,178) (1,081,661) --------------- --------------- Cash flows from investing activities: Proceeds from sale of Conn. Svcs. business - 900,000 Purchases of long term investment (30,000) - Payments received on note receivable 20,768 48,392 Acquisition of Trilliant Corporation assets (161,034) - Proceeds from sale of property and equipment - 4,366 Purchase of property and equipment (37,655) - --------------- --------------- Net cash provided by (used in) continuing operations (207,921) 4,366 Net cash provided by (used in )discontinued operations - 948,392 --------------- --------------- Net cash provided by (used in) investing activities (207,921) 952,758 Cash flows from financing activities: Decrease in bank overdraft (9,620) (63,705) Proceeds from notes payable 536,288 40,000 Payments on notes payable (34,000) (362,344) Advances on purchases of equity securities 265,000 - Proceeds from subscription receivable - 4,134 - Issuance of common stock for cash 433,344 519,673 --------------- --------------- Net cash provided by continued operations 1,195,146 133,624 Net cash provided by discontinued operations Net cash provided by financing activities 1,195,146 133,624 --------------- --------------- Net increase in cash and cash equivalents 411,047 4,721 Cash and cash equivalents at beginning of period 3,708 9,845 --------------- --------------- Cash and cash equivalents at end of period $ 414,755 $ 14,566 =============== ===============
F-3
BLUEGATE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) UNAUDITED NINE MONTHS ENDED ------------------------------ SEPTEMBER 30, SEPTEMBER 30, 2005 2004 -------------- -------------- Non Cash Transactions: Issuance of common stock for conversion of notes payable $ 75,000 $ - Issuance of common stock and common stock equivalents for conversion of related party notes payable 355,018 - Issuance of common stock and common stock equivalents for conversion of accrued interest 68,891 - Issuance of common stock and common stock equivalents for conversion of related party accounts payable 154,297 - Issuance of common stock for acquisition 105,745 - Nationwide settlement: Accounts receivable 122,429 - Accounts payable 151,949 - Note receivable 128,230 -
F-4 BLUEGATE CORPORATION NOTES TO FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION ----------------------- The accompanying unaudited interim financial statements of Bluegate Corporation ("Bluegate"), 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 ("SEC"), 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-KSB. 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 would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2004 as reported in the form 10-KSB have been omitted. STOCK-BASED COMPENSATION - ------------------------- Bluegate applies APB No. 25 in accounting for its stock option plans and, accordingly, no compensation cost has been recognized in Bluegate's financial statements for stock options under any of the stock plans which on the date of grant the exercise price per share was equal to or exceeded the fair value per share. However, compensation cost has been recognized for warrants and options granted to non-employees for services provided. The following table illustrates the effect on net loss and net loss per share if Bluegate had applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEBMER 30, ----------------------- ------------------------ 2005 2004 2005 2004 ----------- ---------- ------------ ---------- Net income (loss) attributable to common shareholders as reported $ (822,723) (101,722) $(3,378,784) (433,890) ----------- ---------- ------------ ---------- Stock based employee compensation included in reported net loss 32,022 - 192,446 - Total stock-based employee compensation expense determined under fair value based method for all options (144,690) - (1,157,163) - ----------- ---------- ------------ ---------- Pro forma net loss $ (935,391) (101,722) $(4,343,501) (433,890) =========== ========== ============ ========== Basic and diluted loss per share As reported: Continuing operations (0.15) (0.05) (0.79) (0.28) Discontinued operations - - - (0.07) Net income (loss) $ (0.15) (0.05) $ (0.79) (0.21) Pro forma: Net income (loss) (0.17) (0.05) (1.02) (0.21) Continued operations (0.17) (0.05) (1.02) (0.28) Discontinued operations - - - (0.07) Weighted average shares outstanding: 5,313,643 2,259,188 4,251,452 2,031,295
Bluegate used the Black-Scholes option pricing model to value stock options using the following assumptions: proceeds as set forth in the option agreements; no expected dividend yield; expected volatility of 250%; risk-free interest rates of 5.0%; and expected lives of 3-5 years. 2. ACQUISITION OF TRILLIANT CORPORATION --------------------------------------- On September 15, 2005, Bluegate acquired substantially all of the assets and assumed certain ongoing contractual obligations of F-5 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 will strengthen Bluegate as a competitor in the technology management industry. The purchase price consisted of $161,033 cash and 151,065 shares of Bluegate's common stock valued at $105,746. The asset sale and purchase agreement provides for additional consideration up to 827,160 common shares depending on the acquired business' revenue over the next two years and royalty payments based on sales over the next two years of certain software acquired. The purchase price allocation is preliminary awaiting a final valuation of the assets acquired. The estimated fair values of the assets acquired at September 15, 2005 are as follows:
Property and equipment $ 17,270 Computer software 78,727 Accounts receivable 170,782 ----------- Total $ 266,779 ===========
Additional consideration, if any, will be allocated to goodwill upon payment. Goodwill will be tested periodically for impairment as required by FASB Statement No. 142, "Goodwill and other Intangible Assets." The results of this acquisition are included in the consolidated financial statements from the date of acquisition. Unaudited proforma operating results for Bluegate, assuming the acquisition occurred on January 1, 2004, are as follows:
Three Months Ended September 30, Nine Months Ended September 30, ------------------------------------- ------------------------------------ 2005 2004 2005 2004 ------------------ ----------------- ----------------- ----------------- Service revenue $ 926,929 $ 675,773 $ 2,317,277 $ 1,596,450 Net loss (625,905) (185,947) (3,219,632) (759,573) Net (loss) per common share (0.18) 0.08 (0.79) (0.37)
The proforma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved by combining the operations. 3. CONVERTIBLE NOTES PAYABLE --------------------------- During the nine months ended September 30, 2005, Bluegate: - Issued a $100,000 convertible promissory note. The note bears interest of 10%, matures in November 2005 and is unsecured. The note payable is convertible into common stock at $.50 per share. There were 100,000 detachable warrants attached to the note with a relative fair value of $38,557. The intrinsic value of the conversion feature totaled $61,443 resulting in a discount of $100,000 to the note payable. During the quarter ended September 30, 2005, Bluegate issued 150,000 shares of common stock for conversion of $75,000 of this note payable (see note 5 for details). The discount will be amortized over the life of the note. The details are as follows:
Face value of note payable $100,000 Less: discount related to warrants (38,557) discount related to conversion feature (61,443) conversion of notes (75,000) Add: amortization of discount 97,059 --------- Carrying value of note at September 30, 2005 $ 22,059 =========
- Converted $355,018 of principal, $68,891 of interest and $154,297 of accounts payable for 1,008,630 shares of common stock and 1,008,630 warrants. See note 4 for details. - Borrowed $500,000 by issuing 10% Convertible Notes with Detachable Warrants in September 2005. The Note is senior to all other indebtedness of the Company, with the exception of up to $150,000 in principal amount of senior debt secured by accounts receivable issued by the Company. Interest is ten (10) percent annually and will be accrued and added to the then outstanding principal amount of the Notes daily. Repayment will be within five (5) days of F-6 receipt of funds by the Company of any subsequent offering, raising gross proceeds to the Company of at least $1,000,000 or the date which is one hundred and eighty (180) days after the date of the Note. The Holder has the right to convert the Note into shares of common stock at a conversion price of $0.75 per share. The Company may extend the repayment date for two successive periods of ninety (90) days each by providing written notice to the Holder and then delivering to the Holder of the Note an "Extension Warrant" for shares of Common Stock of the Company equal to 50% of the number of shares underlying the Note at the time of each extension, exercisable at $0.75 per share. These Extension Warrants have a term of five years beginning as of the date of issue. The carrying value of the note at September 30, 2005 is as follows:
Face value of note payable $ 500,000 Less: discount related to warrants (236,540) discount related to conversion feature (189,748) financing costs (73,712) Add: amortization of discount 11,111 ---------- Carrying value of note at September 30, 2005 $ 11,111 ==========
4. NOTE PAYABLE ------------ During the nine months ended September 30, 2005, Bluegate borrowed $10,000 under an existing note dated March 2004. The note is due on demand, bears interest of 10% and is unsecured. 5. COMMON STOCK, OPTIONS AND WARRANTS ---------------------------------- During the nine months ended September 30, 2005, Bluegate: - Sold 817,353 shares of common stock and 550,000 warrants for cash proceeds of $358,381. The warrants have an exercise price of $1.00 to $1.25, expire in three years and vest immediately. The relative fair value of the warrants was $135,311. 192,335 of the 817,353 shares were sold under Regulation S to foreign investors for $93,112 with net proceeds of $25,382 to Bluegate and $67,730 retained by the foreign broker. - Issued 1,008,630 shares of common stock and 1,008,630 warrants with an aggregate value of $1,471,088 to officers and directors in exchange for their convertible notes payable and accounts payable. Principal of $355,018, interest of $68,891 and accounts payable of $154,297 were converted leaving a loss on conversion to Bluegate of $892,882. The warrants have an exercise price of $1.00, expire in three years and vest immediately. - Issued 656,563 shares of common stock valued at $491,312 for services provided by consultants and an officer of Bluegate. The officer received 100,000 shares valued at $101,000. - Granted 100,000 warrants in connection with a $100,000 convertible note. See note 3 for details. - Received cash totaling $4,134 for subscriptions receivable. - Granted 1,875,000 stock options to officers and directors. The intrinsic value was $240,500 of which $192,446 was recognized in the nine months ended September 30, 2005. The options have an exercise price of $.50 to $1.50, expire in five years and have various vesting terms. - Granted 275,000 stock options to two consultants. The fair value of the options was $152,052 of which $152,052 was recognized in the nine months ended September 30, 2005. The options have an exercise price of $.50 to $1.00, expire in nine months to three years and have various vesting terms. - In July 2005 the Company granted 10,000 stock options each to four individuals who have agreed to serve on an advisory panel of Bluegate. The fair value of the options was $56,616 on the date of the grant. The options have an exercise price of $1.50 per share and expire five years from the date of the grant. The options vest immediately. - Issued 150,000 shares of common stock to an investor for conversion of $75,000 of its convertible note payable. - Issued two investors an aggregate of 150,000 shares at $.50 per share. Each investor also received warrants to purchase 50,000 shares at $1.00 and warrants to purchase 25,000 shares at $1.25. - Issued 151,065 shares of common stock valued at $105,746 in connection with the acquisition of Trilliant Corp. assets (see note 2). - Issued 174,445 shares of common stock valued at $150,845 for services rendered by consultants. - On September 26, 2005, we received the gross amount of $500,000 through the sale of unit securities to 14 investors. Each unit consisted of the face amount of $30,000 of a 10% Convertible Promissory Notes with Detachable Warrants. The Notes are convertible at a conversion price of $0.75 per share of common stock. Each unit included a warrant for F-7 the purchase of 40,000 shares of common stock at an exercise price of $1.00 per share expiring five years from the issue date. - Granted 330,000 stock options to two consultants. The fair value of the options was $276,933 of which $164,638 was recognized in the nine months ended September 30, 2005. The options have an exercise price of $.50 to $1.50, expire in five years and have various vesting terms. 6. NOTE RECEIVABLE --------------- During the nine months ended September 30, 2005, Bluegate purchased 1,500 shares valued at $30,000 of a private company controlled by a then officer of Bluegate. Bluegate accounted for this investment under the cost method and originally intended on holding the shares as a long term investment. Effective September 2005 the investment was converted into a note receivable bearing interest at 8.75%. The note is unsecured but guaranteed by a former officer of Bluegate and matures in January 2006. 7. ADVANCES ON PURCHASE OF EQUITY SECURITIES ----------------------------------------- Bluegate received $250,000 from one investor for the purchase of 500,000 shares and warrants to purchase 250,000 shares at $1.00 and warrants to purchase 250,000 shares at $1.25. As of September 30, 2005, the shares had not been issued. Bluegate received $15,000 from another investor for the purchase of common stock. As of September 30, 2005, the shares had not been issued. F-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS FORWARD LOOKING STATEMENT This Management's Discussion and Analysis as of September 30, 2005 and for the nine months ended September 30, 2005, should be read in conjunction with the audited financial statements and notes thereto set forth in our annual report on Form 10-KSB for 2004. Certain statements contained in this report, including, without limitation, statements containing the words, "likely", "forecast", "project", "believe", "anticipate", "expect", and other words of similar meaning, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such factors or to announce publicly the results of any revision of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments. In addition to the forward-looking statements contained in this Form 10-QSB, the following forward-looking factors could cause our future results to differ materially from our forward-looking statements: competition, capital resources, credit resources, funding, government compliance and market acceptance of our products and services. ABOUT US We provide IT outsourcing and managed security solutions for the healthcare industry to enable secure, HIPAA-compliant data communication between hospitals, medical facilities and physician practices from all locations - ultimately enhancing patient care. We also provide affordable access to compatible medical-focused content and applications over the infrastructure to improve practice efficiency and service. We extend IT best practices to the edge of the healthcare network ensuring every physician and healthcare location is as secure as the hospital itself. Our Web site is www.bluegate.com. In 2004, Memorial Hermann Health Net Providers (MHHNP), announced to its physician members that MHHNP entered into an exclusive contract with us as the newest member value program for all of its physicians. We are MHHNP's preferred Internet and VPN provider for establishing a secure data communication network among the MHHNP membership. The installation schedule began immediately. At this time there are more than 950 MHHNP physician members who use us. This contract has propelled us into the forefront of the nationwide healthcare information network initiative called for by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). 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 health care 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 health care system by encouraging the widespread use of electronic data interchange in health care. Bluegate is discovering that it appears to singularly solve a particularly vexing piece of the HIPAA: connecting the individual physician's practice to this secured network. As a result, Bluegate has ambitions to be the national "grid" that all vested parties in the HIPAA initiative turn to when the concern of connecting physicians to the hospital and the insurance companies in a secured manner is addressed. As a result, Bluegate, in this third quarter, has acquired and deployed significant resources towards this national opportunity. We are actively in contact with institutions around the country as we tell the Bluegate case study that has been deployed in Houston, Texas. Our current overall strategy is twofold: 1. To fill as much of the national HIPAA compliant secured communications void that exists between the physician and the hospital as we can; and 2. To "backfill" with the physicians that join our Bluegate network to insure we are the IT outsource firm of choice for all of their technology needs. 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 I-1 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 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. 123") established financial accounting and reporting standards for stock-based employee compensation plans. It defined a fair value based method of accounting for an employee stock option or similar equity instrument and encouraged all entities to adopt that method of accounting for all of their employee stock compensation plans and include the cost in the income statement as compensation expense. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". The Company accounts for compensation cost for stock option plans in accordance with APB Opinion No. 25. GENERAL - ------- Effective June 17, 2004, we entered into an Asset Sale Agreement (the "Agreement") with DFW Internet Services, Inc. ("DFW"), a Texas corporation and a wholly-owned subsidiary of MobilePro Corporation for the sale of certain assets related to connectivity services including wireless, digital subscriber line and traditional communication technologies to business and residential customers. Under the terms of this Agreement, we will receive a total of $1,150,000 of which $900,000 was cash and $250,000 was a one-year promissory note. Additionally, DFW acquired 85% of accounts receivable associated with services provided to our customers through June 17, 2004. Further, DFW entered into a one-year sublease for our leased space at 701 N. Post Oak Road, Suite 630, Houston, Texas, for rental rate of $3,000 per month. The terms and conditions of the transactions were the result of arms-length negotiations by the parties. We received a fairness opinion from an independent third party that the asset sale was fair and equitable to us. As a result of the Agreement our operations are now solely based on Bluegate (TM), our branded HIPAA compliant broadband digital connectivity offering for health care providers nationally. We remain dependent on outside sources of funding for continuation of our operations. Our independent auditors included a going concern qualification in their report dated March 28, 2005 (included in our annual report on Form 10-KSB for the year ended December 31, 2004). During the nine months ended September 30, 2005, and the years ended December 31, 2004 and 2003, 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. During the years ended December 31, 2004 and 2003, we experienced negative financial results as follows:
Year Ended December 31, ----------------------------- 2004 2003 -------------- ------------- Net loss $ (640,199) $ (2,543,629) Negative cash flow from operations (843,215) (1,423,363) Negative working capital (1,241,177) (1,743,942) Stockholders' deficit (1,167,719) (1,140,379)
I-2 During the nine months ended September 30, 2005, we experienced negative financial results as follows:
Nine Months Ended September 30, ------------------------------------- 2005 2004 ------------------ ----------------- Net loss $ (3,378,784) $ (433,890) Negative cash flow from operations (576,178) (1,081,661) Negative working capital (880,925) (1,079,983) Stockholders' deficit (722,994) (1,030,588)
We have supported current operations by: 1) raising additional operating cash through the private sale of our common stock and options, 2) selling convertible notes and 3) issuing stock and options as compensation to certain employees and vendors in lieu of cash payments. In addition, we are seeing a positive revenue growth trend, which is also increasingly contributing to reducing our operating deficit. These steps have provided us with the cash flows to continue our business plan, and the improved operating revenue is resulting in some improvement in our financial position. We are taking steps to improve our cash flow situation that include raising capital through additional sale of our common and preferred stock and/or debt securities. This step 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. Our operations are located in Houston, Texas. Our business consists of the sales and marketing of our HIPAA compliant VPN and HIPAA application software. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2004 During the three months ended September 30, 2005, our revenue was $665,775 versus $362,235 for the three month period ended September 30, 2004. This represents an increase of $303,540 and is primarily attributable to our efforts to market BLUEGATE(TM) which is our core business. Our cost of sales (cost of services) for the three months ended September 30, 2005 was $242,676 compared to $154,527 for the three months ended September 30, 2004. The increase in cost of sales of $88,149 is due to higher interconnect fees and costs associated with BLUEGATE(TM). Our gross margin for the three months ended September 30, 2005 was $423,099 compared to $207,708 for the three months ended September 30, 2004. Our gross margin as a percentage of sales increased from 57% for the three months ended September 30, 2004 to 64% for the three months ended September 30, 2005. The increase in gross margin of $215,391 is attributable to the fact that our gross margin improves as HIPAA revenue increases as a result of fixed costs that are a relatively high portion of our total costs. However, we anticipate that our variable costs will increase as we expand our HIPAA business. We incurred selling, general and administrative expenses of $1,185,689 for the three months ended September 30, 2005 compared to $303,616 for the three months ended September 30, 2004. The increase in SG&A of $882,082 is attributable to the ramp up of our sales and marketing efforts. We incurred a net loss of $(822,723) for the three months ended September 30, 2005 compared to a net loss of $(101,722) for the three months ended September 30, 2004. The increase of $781,001 is primarily due to the expenses associated with the increase in administration, sales and marketing caused by a higher level of effort in these areas. NINE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2004 During the nine months ended September 30, 2005, our revenue was $1,541,542 versus $734,412 for the nine month period ended September 30, 2004. This increase of $807,130 is primarily attributable to our efforts to market Bluegate(TM) as it has I-3 become the center of our business. Cost of sales for the nine months ended September 30, 2005 was $664,407 versus $379,158 for the comparable 2004 period. The increase of $285,249 is due to a higher level of sales and higher interconnects fees and costs associated with Bluegate(TM). The gross margin for the nine month period ended September 30, 2005 is 57% compared to 46% for the comparable period in 2004. The improvement is attributable to the fact that our margins improve as revenues increase due to fixed costs. Selling, general and administrative expenses of $3,237,415 were incurred for the nine months ended September 30, 2005, compared to $899,151 for the nine months ended September 30, 2004. The increase of $2,338,264 is due primarily to costs and expenses associated with the increase of administration, sales and marketing for Bluegate and stock based compensation. We incurred a net loss of $(3,378,784) for the nine months ended September 30, 2005 compared to a net loss of $(433,890) for the nine months ended September 30, 2004. The increase is due primarily to non-cash expenses of $892,882 that was recorded upon the conversion of notes payable to common stock, issuance of common stock valued at $642,156 in exchange for services, common stock options and warrants valued at $565,753 in exchange for services, and increased S, G & A expenses. FORECAST OF GROWTH IN OUR HIPAA CUSTOMER BASE - --------------------------------------------- Since we refocused our business activities in 2004 to concentrate on our HIPAA business segment, we have added an aggregate of more than 1090 HIPAA customers through October 31, 2005. For the remainder of the year, we are forecasting only a marginal increase in the number of HIPAA customers throughout 2005. We have, therefore, shifted our focus in the Houston market towards increasing our outsourced IT services to our existing physician customer base. Our goal is to increase the amount of revenue we obtain from each physician we serve. We have also initiated an aggressive effort to expand our Bluegate network beyond Houston. Although we have opened up a number of discussions with Hospital groups on other markets, we have no assurances we will be successful in these efforts. LIQUIDITY AND CAPITAL RESOURCES Operations for the nine month period ended September 30, 2005 have been funded by the issuance of common stock and options for cash in private transactions, loans and the proceeds from the sale of our traditional connectivity business in 2004. The Company 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 the health care industry. Because of the uncertainty associated with this new market, breakeven cash flow is not expected until late 2005, at the earliest. Our cash on hand at September 30, 2005 was $414,755. We are seeking additional capital to fund expected operating costs. 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. If we are unable to raise additional funding, we may have to limit our operations to an extent that we cannot presently determine. The effect of this on our business may require the sale of assets, the reduction or curtailment of new customer acquisition, reduction in the scope of current operations or the curtailment of business operations. Our ability to achieve profitability will depend upon our ability to raise additional operating capital, the continued growth in demand for connectivity services and our ability to execute and deliver high quality, reliable connectivity services. Our growth is dependent on attaining profit from our operations and our raising additional capital either through the sale of stock or borrowing. There is no assurance that we will be able to raise any equity financing or sell any of our products at a profit. Our future capital requirements will depend upon many factors, including the following: - The cost of operating our VPN - The cost of third-party software - The cost of sales and marketing - The rate at which we expand our operations - The response of competitors I-4 ITEM 3. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Based on their evaluation of our disclosure controls and procedures (as defined in Rule 13a-15e under the Securities Exchange Act of 1934 (the "Exchange Act")), our principle executive officer and principle financial officer have concluded that as of the end of the period covered by this quarterly report on Form 10-QSB such disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, because of several adjustments required by our auditors predominantly in the areas of debt and equity. Specifically, our independent auditors identified deficiencies in our internal controls and disclosure controls related to the valuation of discounts for convertible debt with detachable warrants, expense recognition and issuances of our stock and stock options. Appropriate adjustments and footnote disclosures have been recorded and disclosed in our Interim Report on Form 10-QSB. We are in the process of improving our internal controls in an effort to remediate these deficiencies through the following efforts: 1) employing a new CFO who is a CPA with public company and operational experience, 2) implementing better controls and procedures over debt valuation, expense recognition and stock and stock option issuances, and 3) improving supervision and training of our accounting staff. We are continuing our efforts to improve and strengthen our control processes and procedures to fully remedy these deficiencies. Our management and directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective. (b) Changes in internal control over financial reporting. During the quarter under report, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The evaluation of our disclosure controls included a review of whether there were any significant deficiencies in the design or operation of such controls and procedures, material weaknesses in such controls and procedures, any corrective actions taken with regard to such deficiencies and weaknesses and any fraud involving management or other employees with a significant role in such controls and procedures. There have been no changes in our internal control over financial reporting other than those disclosed above. I-5 PART II ITEM 1. LEGAL PROCEEDINGS We are a party in the following litigation: Bluegate Corporation v. the Navi-Gates Corporation and Robert C. Weslock, Cause No. 2005-00534, In the 234th Judicial District Court of Harris County, Texas. We recently filed this lawsuit, claiming breach of contract, deceptive trade practices and fraud. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES We issued unregistered securities in transactions summarized below. During the third quarter of 2005, we issued to two investors an aggregate of 50,000 shares valued at $.50 per share. One of these investors also received warrants to purchase 25,000 shares at $1.00 and warrants to purchase 25,000 shares at $1.25. 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. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor 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 third quarter of 2005, we are obligated to issue to one investor 500,000 shares valued at $.50 per share and warrants to purchase 250,000 shares at $1.00 and warrants to purchase 250,000 shares at $1.25 for total consideration of $250,000. 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. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor 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 third quarter of 2005, we issued to one investor 100,000 shares at $.50 per share and warrants to purchase 50,000 shares at $1.00 and warrants to purchase 50,000 shares at $1.25. 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. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor 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 third quarter of 2005, we issued to each of five investors option to purchase 10,000 shares at $1.50 in consideration for their serving on a medical advisory committee. 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. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor 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 third quarter of 2005, we issued 151,065 shares in consideration for the purchase of Trilliant Corp., at $0.70. 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. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor 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 third quarter of 2005, we received the gross amount of $500,000 through the sale of unit securities to 14 investors. Each unit consisted of the face amount of $30,000 of a 10% Convertible Promissory Notes with Detachable Warrants. The Notes are convertible at a conversion price of $0.75 per share of common stock. Each unit included a warrant for the purchase of 40,000 shares of common stock at an exercise price of $1.00 per share expiring five years from the issue date. This transaction II-1 was exempt pursuant to Regulation D Rule 506 under the Securities Act. During October 2005, we issued an option to purchase 350,000 shares at $1.00 per share in consideration 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. No underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with any of these transactions. This transaction did not involve a public offering. The investor was knowledgeable about our operations and financial condition. The investor had knowledge and experience in financial and business matters that allowed him to evaluate the merits and risk of receipt of these securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMAION None ITEM 6. EXHIBITS
Exhibit Exhibit Number Name - -------------------------------------------------------------------------------- 31.1 Certification pursuant to Section 13a-14 of CEO 31.2 Certification pursuant to Section 13a-14 of CFO 32.1 Certification pursuant to Section 1350 of CEO 32.2 Certification pursuant to Section 1350 of CFO
II-2 SIGNATURES In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized Bluegate Corporation Date: November 21, 2005 /s/ Manfred Sternberg ---------------------- Manfred Sternberg, Chief Executive Officer Bluegate Corporation Date: November 21, 2005 /s/ Steven M. Plumb -------------------- Steven M. Plumb, CPA, Chief Financial Officer II-3 EX-31.1 2 ex31_1.txt EXHIBIT 31.1 EXHIBIT 31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF BLUEGATE CORPORATION REQUIRED BY RULE 13A - 14(1) OR RULE 15D - 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. CERTIFICATIONS - -------------- I, Manfred Sternberg, the Chief Executive Officer of Bluegate Corporation, certify that: 1. Then I have reviewed this quarterly report on Form 10-QSB of Bluegate Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 21, 2005 /s/ Manfred Sternberg ______________________________ Manfred Sternberg Chief Executive Officer EX-31.2 3 ex31_2.txt EXHIBIT 31.2 EXHIBIT 31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER OF BLUEGATE CORPORATION REQUIRED BY RULE 13A - 14(1) OR RULE 15D - 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. CERTIFICATIONS - -------------- I, Steven M. Plumb, CPA, the Chief Financial Officer of Bluegate Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Bluegate Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 21, 2005 /s/ Steven M. Plumb ______________________________ Steven M. Plumb, CPA Chief Financial Officer EX-32.1 4 ex32_1.txt EXHIBIT 32.1 EXHIBIT 32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF BLUEGATE CORPORATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND SECTION 1350 OF 18 U.S.C. 63. I, Manfred Sternberg, the Chief Executive Officer of Bluegate Corporation, hereby certify that Bluegate Corporation 's periodic report on Form 10-QSB, for the period ending September 30, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that information contained in the periodic report on Form 10-QSB fairly presents, in all material respects, the financial condition and results of the operations of Bluegate Corporation. Date: November 21, 2005 /s/ Manfred Sternberg ---------------------- Manfred Sternberg Chief Executive Officer EX-32.2 5 ex32_2.txt EXHIBIT 32.2 EXHIBIT 32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER OF BLUEGATE CORPORATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND SECTION 1350 OF 18 U.S.C. 63. I, Steven M. Plumb, the Chief Financial Officer of Bluegate Corporation, hereby certify that Bluegate Corporation's periodic report on Form 10-QSB, for the period ending September 30, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that information contained in the periodic report on Form 10-QSB fairly presents, in all material respects, the financial condition and results of the operations of Bluegate Corporation. Date November 21, 2005 /s/Steven M. Plumb ------------------ Steven M. Plumb, CPA Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----