EX-99.3 4 ex99_3.htm EXHIBIT 99.3 Exhibit 99.3
EXHIBIT 99.3

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF BLUEGATE CORPORATION AS OF JUNE 30, 2005 AND FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND THE TWELVE MONTHS ENDED DECEMBER 31, 2004.
 
BLUEGATE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005 AND FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND THE TWELVE MONTHS ENDED DECEMBER 31, 2004.


The following unaudited pro forma combined condensed financial statements are based on the historical financial statements of Bluegate Corporation (the "Company" or "Bluegate") and Trilliant Corporation ("Trilliant") after giving effect to our acquisition of Trilliant ("Acquisition") and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. The Company acquired certain assets of Trilliant in exchange for $161,033 in cash and 258,302 shares of Bluegate's common stock valued at $180,811. The transaction was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." The Acquisition closed on September 15, 2005.

The unaudited pro forma condensed combined balance sheets as of June 30, 2005 is presented to give effect to the acquisition as if it occurred on June 30, 2005 by combining the historical balance sheets of Bluegate and Trilliant at June 30, 2005. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2005 is presented as if the acquisition had taken place on January 1, 2005 by combining the historical results of Bluegate and Trilliant for the six months ended June 30, 2005. The unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2004 is presented as if the acquisition had taken place on January 1, 2004 by combining the historical results of Bluegate and Trilliant for the twelve months ended December 31, 2004.

The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have been achieved if the Acquisition had occurred on January 1, 2004, nor is it indicative of future operating results or financial position. The unaudited pro forma combined condensed financial statements do not reflect any operating efficiencies and cost savings that we may achieve with respect to the combined companies. The pro forma information should be read in conjunction with the accompanying notes thereto, and in conjunction with the historical consolidated financial statements and accompanying notes of the Company included in our annual reports on Form 10-KSB and quarterly reports on Form 10-QSB. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable.

1
 
BLUEGATE CORPORATION
TABLE OF CONTENTS
 
 
PAGE
   
Unaudited Pro Forma Combined Condensed Financial Statements:
  
   
Unaudited Pro Forma Combined Balance Sheets as of June 30, 2005
3
   
Unaudited Pro Forma Combined Statements of Operations for the six months ended June 30, 2005
4
   
Unaudited Pro Forma Combined Statements of Operations for the twelve months ended December 31, 2004
5
   
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
6

2
 
BLUEGATE CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
JUNE 30, 2005
 
   
Historical
Bluegate
June 30,
2005
(Unaudited)
  
Historical
Trilliant
June 30,
2005
(Unaudited)
  
Eliminate
Trilliant
June 30,
2005
Historical
      
Pro Forma
Adjustments
      
Pro Forma
Combined
  
ASSETS
      
   
                      
Current assets:
                              
Cash and cash equivalents
  
$
169,756
  
$
-
  
$
-
        
$
(161,033
)
  
(D)
 
$
8,723
  
Accounts receivable, net
   
108,109
   
153,651
   
-
         
-
         
261,760
 
Inventory
    
46,231
   
-
   
-
         
-
         
46,231
 
Prepaid expenses and other
    
31,863
   
-
   
-
         
-
         
31,863
 
Total current assets
    
355,959
   
153,651
   
-
         
(161,033
)
        
348,577
 
Property and equipment, net
    
60,516
   
12,832
   
-
         
41,893
   
(B)
 
  
115,241
 
Long term investment
    
30,000
   
-
   
(166,483
)
  
(A)
 
  
166,483
         
30,000
 
Goodwill
    
-
   
-
   
-
         
28,702
   
(B)
 
  
28,702
 
Intangible assets, net
    
-
   
1,250
   
(1,250
)
  
(A)
 
  
104,771
   
(B)
 
  
104,771
 
Total assets
  
$
446,475
  
$
167,733
  
$
(167,733
)
      
$
180,816
    
 
  
$
627,291
  
                                             
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                                            
Current liabilities:
                                            
Convertible notes payable
  
$
86,734
  
$
-
  
$
-
        
$
-
        
$
86,734
  
Notes payable
    
12,800
   
-
   
-
         
-
         
12,800
 
Bank line of credit
    
-
   
50,746
   
(50,746
)
  
(A)
 
  
-
         
-
 
Notes payable - related parties
    
-
   
254,542
   
(254,542
)
  
(A)
 
  
-
         
-
 
Accounts payable
    
608,195
   
27,555
   
(27,555
)
  
(A)
 
  
-
         
608,195
 
Accrued liabilities
    
487,425
   
14,947
   
(14,947
)
  
(A)
 
  
-
         
487,425
 
Advance on sale of securities
    
275,000
   
-
   
-
         
-
         
275,000
 
Total current liabilities
    
1,470,154
   
347,790
   
(347,790
)
        
-
         
1,470,154
 
                                             
Long term debt - related party
    
-
   
24,341
   
(24,341
)
  
(A)
 
  
-
         
-
 
Total liabilities
    
1,470,154
   
372,131
   
(372,131
)
        
-
         
1,470,154
 
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)
    
-
   
-
   
-
         
-
         
-
 
                                             
Common stock, $.001 par value, 50,000,000 shares authorized, 5,031,343 shares issued and outstanding at June 30, 2005
    
5,032
   
1,000
   
(1,000
)
  
(A)
 
  
26
   
(D)
 
  
5,058
 
Additional paid-in capital
    
9,003,298
   
2,100
   
(2,100
)
  
(A)
 
  
180,790
   
(D)
 
  
9,184,088
 
Subscription receivable
    
(15,006
)
  
-
   
-
         
-
         
(15,006
)
Treasury stock
    
-
   
(39,877
)
  
39,877
   
(A)
 
  
-
         
-
 
Deferred compensation
    
(117,365
)
  
-
   
-
         
-
         
(117,365
)
Accumulated deficit
    
(9,899,638
)
  
(167,621
)
  
167,621
   
(A)
 
  
-
         
(9,899,638
)
Total stockholders’ deficit
    
(1,023,679
)
  
(204,398
)
  
204,398
         
180,816
         
(842,863
)
                                             
Total liabilities and stockholders’ deficit 
  
$
446,475
  
$
167,733
  
$
(167,733
)
      
$
180,816
        
$
627,291
  
 
3
 
 
BLUEGATE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005

   
Six months ended June 30, 2005
  
   
As Reported
by Bluegate
Unaudited
  
As Reported by
Trilliant
Unaudited
  
Pro Forma
Adjustments
      
Pro Forma
Combined
  
                       
Service revenue
  
$
875,767
  
$
514,382
  
$
-
        
$
1,390,149
  
                                 
Cost of services
    
421,731
   
-
   
-
         
421,731
 
Gross margin
    
454,036
   
514,382
   
-
         
968,418
 
                                 
Selling, general and administrative expenses
    
2,051,726
   
561,009
   
9,810
   
(C)
 
  
2,622,545
 
                                 
Loss from operations
    
(1,597,690
)
  
(46,627
)
  
(9,810
)
        
(1,654,127
)
                                 
Interest income
    
(2,932
)
  
-
   
-
         
(2,932
)
Loss on conversion of notes payable to common stock
    
892,882
   
-
               
892,882
 
Interest expense
    
70,372
   
7,175
   
-
         
77,547
 
Other income
   
(1,952
)
  
-
   
-
         
(1,952
)
                                 
Net loss
  
$
(2,556,060
)
$
(53,802
)
$
(9,810
)
      
$
(2,619,672
)
                                 
Basic and diluted:
                                
                                 
Net loss per common share:
  
$
(0.69
)
  
-
   
-
       
$
(0.66
)
 
                                
Weighted average shares outstanding
    
3,710,123
    
-
   
258,302
   
(D)
 
  
3,968,425
 
 
4

BLUEGATE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004
 
   
Twelve months ended December 31, 2004
  
   
As Reported
by Bluegate
Audited
  
As Reported
by Trilliant
Audited
  
Pro Forma
Adjustments
  
Pro Forma
Combined
  
                   
Service revenue
  
$
1,109,502
  
$
1,195,640
  
$
-
  
$
2,305,142
  
                           
Cost of services
    
597,818
    
-
    
-
    
597,818
  
Gross margin
    
511,684
    
1,195,640
    
-
    
1,707,324
  
                           
Selling, general and administrative expenses
    
1,389,723
    
1,518,545
    
19,620
(C)
  
2,927,888
  
                           
Loss from operations
    
(878,039
)
  
(322,905
)
  
(19,620
)
  
(1,220,564
)
                           
Interest income
   
4,400
    
-
    
-
    
4,400
  
Interest expense
    
(46,240
)
  
(25,820
)
  
-
    
(72,060
)
Other income
   
6,467
    
-
    
-
    
6,467
  
Other expense
   
-
    
(15
)
  
-
    
(15
)
                           
Loss from continuing operations
    
(913,412
)
  
(348,740
)
  
(19,620
)
  
(1,281,772
)
                           
Discontinued operations:
                          
Gain from sale of discontinued broadband internet segment
    
784,213
    
-
    
-
    
784,213
  
Loss from operation of discontinued broadband internet segment
    
(511,000
)
  
-
    
-
    
(511,000
)
 
                          
Income from discontinued operations
    
273,213
    
-
    
-
    
273,213
  
 
                          
Net loss
  
$
(640,199
)
$
(348,740
)
$
(19,620
)
$
(1,008,559
)
                           
Basic and diluted:
                          
 
                          
Net income (loss) per common share:
                          
Continuing operations
  
$
(0.42
)
  
-
    
-
  
$
(0.53
)
Discontinued operations
  
$
0.12
    
-
    
-
  
$
0.11
  
 
                          
Weighted average shares outstanding
    
2,161,615
    
-
    
258,302
(D)
  
2,419,917
  

5
 
BLUEGATE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

1.  BASIS OF PRO FORMA PRESENTATION
The following unaudited pro forma combined condensed financial statements are based on the historical financial statements of Bluegate Corporation (the Company or Bluegate) and Trilliant Corporation (Trilliant) after giving effect to our acquisition of Trilliant (Acquisition) and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. We acquired certain of the assets of Trilliant on September 15, 2005.

The unaudited pro forma condensed combined balance sheets as of June 30, 2005 is presented to give effect to the acquisition as if it occurred on June 30, 2005 by combining the historical balance sheets of Bluegate and Trilliant at June 30, 2005. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2005 is presented as if the acquisition had taken place on January 1, 2005 by combining the historical results of Bluegate and Trilliant for the six months ended June 30, 2005. The unaudited pro forma condensed combined statements of operations for the twelve months ended December 31, 2004 is presented as if the acquisition had taken place on January 1, 2004 by combining the historical results of Bluegate and Trilliant for the twelve months ended December 31, 2004.

The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have been achieved if the Acquisition had occurred on January 1, 2004, nor is it indicative of future operating results or financial position. The unaudited pro forma combined condensed financial statements do not reflect any operating efficiencies and cost savings that we may achieve with respect to the combined companies. The pro forma information should be read in conjunction with the accompanying notes thereto, and in conjunction with the historical consolidated financial statements and accompanying notes of Bluegate included in its annual reports on Form 10-KSB and quarterly reports on Form 10-QSB. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable.

2.  TRILLIANT ACQUISITION
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. The acquisition will strengthen Bluegate as a competitor in the technology management industry. The purchase price consisted of $161,033 in cash and 258,302 shares of Bluegate's common stock valued at $180,811, for a total of $341,844. The asset sale and purchase agreement provides for additional consideration of 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 estimated fair values of the assets acquired at September 15, 2005 are as follows:

Property and equipment
 
$
17,270
  
Computer software
   
41,893
  
Customer list
   
28,702
  
Accounts receivable
   
170,777
  
Goodwill
   
83,202
  
         
Total
 
$
341,844
  

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 allocation of the purchase price was based upon estimates of fair values attributable to the Acquisition. The cost of the identifiable intangible assets will be amortized on a straight-line basis over periods ranging from 3 to 5 years.

3.  HISTORICAL INFORMATION
Trilliant's historical financial information as of June 30, 2005 and the six months then ended, as well as of and for the twelve months ended December 31, 2004, are derived from Trilliant's historical financial statements. Certain reclassifications have been made to these financial statements to conform to the presentation used in Bluegate's historical financial statements. Such reclassifications had no effect on Trilliant's previously reported net income or loss or income from operations.

6
 
BLUEGATE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)


4.  PRO FORMA ADJUSTMENTS
(A)
Adjustments related to assets not acquired and liabilities not assumed as part of the transaction.

 
(B)
Allocation of the total purchase price of Trilliant's net tangible and identifiable intangible assets is shown as if the transaction had occurred June 30, 2005. The excess of the purchase price over the net tangible and identifiable intangible assets was allocated to goodwill. The total purchase has been allocated as follows:

Accounts receivable, net
  
$
153,651
  
Included in property and equipment, net:
        
Property and equipment
    
54,720
  
         
Identifiable intangible assets:
        
Customer list
    
28,702
  
Goodwill
    
104,771
  
         
   
$
341,844
  


 
(C)
Amortization expense of tangible and intangible assets as a result of the Acquisition of approximately $1,635 per month.

 
(D)
Payment of cash and the issuance of Bluegate's common stock related to the transaction.
 
 
  7