10QSB/A

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB AMENDMENT NUMBER 1

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the quarterly period ended March 31, 2007

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission file number: 000-22711

BLUEGATE CORPORATION

(Exact name of registrant as specified in its charter)

Nevada	76-0640970
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

701 North Post Oak, Road, Suite 600, Houston, Texas	77024
(Address of Principal Executive Office)

(713) 686-1100

(Issuer’s Telephone Number, Including Area Code)

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 o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o  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: 13,592,084 common shares outstanding as of April 24, 2007.

Transitional Small Business Disclosure Format (Check One): Yes  o    No x

EXPLANATORY NOTE

The registrant is filing this Amendment No. 1 on Form 10-QSB/A to its first quarter report on Form 10-QSB for the period ended March 31, 2007, originally filed April 26, 2007, for the new Exhibits 31.1 and 31.2.

BLUEGATE CORPORATION

TABLE OF CONTENTS

__________

PART I.   FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Unaudited Consolidated Financial Statements	F-1
	Unaudited Consolidated Balance Sheets as of March 31, 2007and December 31, 2006	F-1
	Unaudited Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006	F-2
	Unaudited Consolidated Statement of Stockholders’ Deficit for the three months ended March 31, 2007	F-3
	Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006	F-4
	Notes to Unaudited Consolidated Financial Statements	F-5
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS	I-1
ITEM 3.	CONTROLS AND PROCEDURES	I-6

PART II.   OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	II-1
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	II-1
ITEM5.	OTHER INFORMATION	II-1
ITEM 6.	EXHIBITS	II-1
	SIGNATURES	II-2
	CERTIFICATIONS	II-3

ITEM 1.   FINANCIAL STATEMENTS

BLUEGATE CORPORATION
CONSOLIDATED BALANCE SHEETS
UNAUDITED
	March 31,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	209,058		$	256,121
Accounts receivable, net		448,977			280,353
Inventory		6,297			15,652
Prepaid expenses and other		26,034			33,295
Total current assets		690,366			585,421
Property and equipment, net		93,749			92,033
Intangibles, net		13,953			12,301
Total assets	$	798,068		$	689,755
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	210,780		$	296,567
Accrued liabilities		117,986			85,626
Note payable to individual		315,000			-
Note payable		12,800			12,800
Notes payable to related parties		150,481			122,174
Bank line of credit payable		44,546			44,590
Deferred revenue		1,054,593			1,189,236
Total current liabilities		1,906,186			1,750,993
Commitments and contingencies
Stockholders’ deficit:
Series A Convertible Non-Redeemable Preferred stock, $.001 par value, 20,000,000 shares authorized; no shares issued and outstanding		-			-
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, 13,592,084 and 12,130,311 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		13,592			12,130
Additional paid-in capital		21,655,023			19,627,159
Accumulated deficit		(22,776,733	)		(20,700,527	)
Total stockholders’ deficit		(1,108,118	)		(1,061,238	)
Total liabilities and stockholders’ deficit	$	798,068		$	689,755

See accompanying notes to consolidated financial statements

F-1

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007 AND 2006
UNAUDITED
	March 31,
	2007			2006
Service revenue	$	1,361,067		$	935,649
Cost of services		733,512			422,740
Gross profit		627,555			512,909
Selling, general and administrative expenses		867,459			477,899
Compensation expense		1,797,125			788,374
Loss from operations		(2,037,029	)		(753,364	)
Interest expense		(39,177	)		(263,385	)
Other income		-			4,213
Net loss	$	(2,076,206	)	$	(1,012,536	)
Basic and diluted loss per common share:	$	(0.16	)	$	(0.15	)
Weighted average shares outstanding		12,708,063			6,889,515

See accompanying notes to consolidated financial statements

F-2

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 2007
UNAUDITED
					ADDITIONAL
	COMMON STOCK				PAID-IN		ACCUMULATED
	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		800,000		800		399,200					400,000
Issuance of common stock for compensation		150,000		150		142,350					142,500
Issuance of common stock for services		421,773		422		329,103					329,525
Common stock options issued for services						1,011,156					1,011,156
Issuance of common stock and warrants accounted for:
- accounts payable		30,000		30		14,970					15,000
- services		60,000		60		131,085					131,145
Net loss								(2,076,206	)		(2,076,206	)
Balance at March 31, 2007		13,592,084	$	13,592	$	21,655,023	$	(22,776,733	)	$	(1,108,118	)

See accompanying notes to consolidated financial statements

F-3

BLUEGATE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2007 AND 2006
UNAUDITED
	March 31,
	2007			2006
Cash flows from operating activities:
Net loss	$	(2,076,206	)	$	(1,012,536	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		-			242,316
Depreciation and amortization		13,918			20,151
Common stock issued for services		329,525			16,220
Common stock options issued for services		1,011,156			294,926
Common stock issued for compensation		142,500			-
Common stock and warrants issued for services		131,145			-
Accounts receivable		(168,623	)		85,118
Prepaid expenses and other current assets		16,615			(2,741	)
Accounts payable and accrued liabilities		(38,426	)		(25,311	)
Deferred revenue		(134,644	)		151,948
Net cash used in operating activities		(773,040	)		(229,909	)
Cash flows from investing activities:
Proceeds from note receivable		-			32,000
Purchase of property and equipment		(17,287	)		(1,457	)
Net cash (used in) provided by investing activities		(17,287	)		30,543
Cash flows from financing activities:
Change in bank overdraft		-			68,365
Proceeds from related party short term debt		241,753			375,394
Payments on related party short term debt		(213,445	)		(111,099	)
Net change in bank line of credit		(44	)		-
Proceeds from note payable		315,000			-
Common stock and warrants issued for cash		400,000			195,000
Net cash provided by financing activities		743,264			527,660
Net (decrease) increase in cash and cash equivalents		(47,063	)		328,294
Cash and cash equivalents at beginning of period		256,121			27,791
Cash and cash equivalents at end of period	$	209,058		$	356,085
Non Cash Transactions:
Issuance of common stock and warrants for conversion of accounts payable	$	15,000		$	-
Supplemental information:
Cash paid for interest		7,677			21,069

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-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 substantially duplicate the disclosure contained in the audited financial statements for fiscal 2006 as reported in the Form 10-KSB have been omitted.

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, 2007 and 2006, 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, 2007 and December 31, 2006 are summarized below:	3/31/2007		12/31/2006
Secured note payable: On March 8, 2007, we borrowed $315,000 and issued a note payable secured by Bluegate’s accounts receivable. The $315,000 note plus $31,500 is due on May 15, 2007. The $31,500 was recorded as interest expense.	$	315,000	$	-
	$	315,000	$	-
Unsecured notes payable: 10% note payable due upon demand	$	12,800	$	12,800
	$	12,800	$	12,800
Unsecured notes payable to related parties: During 2006, the Company entered into a line of credit agreement with each of two related parties, our CEO Manfred Sternberg and our President William Koehler, for Bluegate to borrow up to $500,000 each. During the three months ended March 31, 2007, we borrowed $241,753 from related parties, with interest rates ranging from 7.35% to 29.99% on their underlying credit cards. During the same period, we made payments of $213,445 on related party notes.
Notes payable to William Koehler due on demand	$	51,587	$	41,910
Notes payable to Manfred Sternberg due on demand		98,894		80,264
	$	150,481	$	122,174
Unsecured bank line of credit: The Company has a bank line of credit to borrow up to $50,000. As of March 31, 2007, the Company had an outstanding payable balance of $44,546 and an available balance to borrow of $5,454. The interest rate was 11% as of March 31, 2007.	$	44,546	$	44,590
	$	44,546	$	44,590

F-5

4. EQUITY TRANSACTIONS

During the quarter ended March 31, 2007, Bluegate completed the following equity transactions:

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.

Issuance of common stock for compensation:

(2) 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 on the date of issuance. We expensed $142,500 in quarter ending March 31, 2007 related to this transaction.

Issuance of common stock for services:

(3) 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 on the date of issuance. We expensed $225,000 in the quarter ending March 31, 2007 related to this transaction.

(4) In February and March 2007, we issued 21,773 shares of common stock valued at $19,525 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.

(5) 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 on the date of issuance. We expensed $85,000 in quarter ending March 31, 2007 related to this transaction.

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

(6) 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, 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.

Stock options issued for services:

(7) During the quarter ended March 31, 2007, Bluegate expensed $838,340 related to previously issued stock options that vested during the period.

(8) The following table summarizes stock options issued to employees during the quarter ended March 31, 2007:

Options	Exercise Price		Fair Value		Expiration Date		Vesting Period	2007 Expense
50,000	$	0.80	$	39,871		1/15/2012	Through 12/08	$	4,983
75,000		0.75		56,069		2/2/2012	Through 1/08		9,344
100,000		0.75		74,759		2/5/2012	Immediately		74,759
50,000		0.86		42,862		2/19/2012	Immediately		42,862
50,000		0.82		40,868		3/19/2012	Immediately		40,868
325,000			$	254,429				$	172,816

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 260%; risk-free interest rates of 5.0%; and option terms as set forth in the options agreements.

5. SUBSEQUENT EVENT

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.

F-6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

FORWARD LOOKING STATEMENT

This Management's Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2007 and for the three months then ended, should be read in conjunction with the audited financial statements and notes thereto set forth in our annual report on Form 10-KSB for 2006.

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

Bluegate provides the nation's only Medical Grade Network® that allows hospitals and physicians to achieve physician and clinical integration by communicating in a secure private environment, improving patient care. As a leader in the healthcare industry of outsourced IT solutions and remote management services, Bluegate provides hospitals and physicians with a single source solution for all clinical integration and IT needs. Additionally Bluegate provides IT consulting through its professional services division and HIPAA-compliant, turnkey managed security services and interoperability solutions across its network to healthcare and other industries.

CONSULTING PRACTICE

Health care institutions have very unique requirements not found in a typical commercial environment. Our consulting practice works with medium to large medical facilities and systems on evaluation, procurement and implementation of voice, data, video, infrastructure and applications for the health care environment. Our applications group also performs specific applications development, enhancement, coding and integration work for these projects when requested by our customers.

OUTSOURCING

Our outsourcing offering includes help desk support and break-fix arrangements 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 our Bluegate Medical Grade Network® - 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 health care network ensuring every access point for the physician and health care location is as secure as the hospital itself.

TWO-FOLD MARKET OPPORTUNITY

HIPAA COMPLIANCE FOR PHYSICIAN PRACTICES

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. There is rapidly increasing demand for our networks, technologies, remote management and professional IT services, largely as the result of increasing pressure for health care providers to adopt electronic health records and the favorable health care IT environment created by the Stark Law exceptions.

I-1

FACILITATE PARTICIPATION IN NATIONAL HEALTHCARE INFORMATION NETWORK (NHIN)

Electronic data communication networks have vast potential for enhancing the quality of patient care, mitigating the soaring costs of health care, and protecting patient privacy. To harness this potential, the current administration, Congress, and administrative agencies are advocating that all physicians get connected to the NHIN, the proposed national health information 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 health care providers at hospitals, clinics, and individual physician offices.

In order to access and use the NHIN, individual physicians must have the appropriate information technology 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.

Today, Bluegate’s offering singularly solves a particularly vexing piece of the HIPAA requirement and the “last mile” challenges of a NHIN by connecting the individual physician's practice to this secured network. As a result, Bluegate is positioning itself, through its Medical Grade Network®, to provide HIPAA compliant connectivity to the NHIN linking physician practices, hospitals and insurance companies to a secure network. As a result, Bluegate, has acquired and deployed significant resources towards this national opportunity. Bluegate began its business installing Medical Grade Networks® in Houston, Texas in late 2004 and 2005. We are in active contract negotiations with health care entities in Texas and around the country to design, develop and deploy networks that are based upon the success of those deployed in Houston, Texas.

BLUEGATE STRATEGY

Our current short term strategies are to: (1) increase our market penetration and dominance of the Houston hospital, centralized health care and physician markets; (2) commence systems in other Texas cities; and, (3) commence systems in other cities in the U.S. Our long term strategy is fourfold: (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 join 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, health care facilities, regional health information organizations (RHIOs) and centralized health care organizations (HCOs) for all their information technology needs; and, (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.

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 Internet, VPN and data 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 the rapid growth in Internet and VPN usage among customers. Other competitors may be:

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

- Local, regional and national Internet service providers, such as Megapath, EarthLink, XO Communications and Mindspring;

- Regional, national and international telecommunications companies, such as AT&T, MCI and Allegiance Telecom;

- On-line services offered by incumbent cable providers such as Time Warner;

- DSL providers such as Covad.

I-2

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

Our web site is www.bluegate.com.

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.

GOING CONCERN

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 12, 2007 (included in our annual report on Form 10-KSB for the year ended December 31, 2006), which raises substantial doubt about our ability to continue as a going concern.

During the three months ended March 31, 2007, and the year ended December 31, 2006, 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 three months ended March 31, 2007 and 2006, we experienced negative financial results as follows:

	Three Months Ended March 31,
	2007			2006
Net loss	$	(2,076,206	)	$	(1,012,536	)
Negative cash flow from operations		(773,040	)		(229,909	)
Negative working capital		(1,215,820	)		(1,414,013	)
Stockholders' deficit		(1,108,118	)		(1,217,435	)

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 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.

I-3

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

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

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

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

Our operations are located in Houston, Texas. Our business consists of the sales and marketing of our HIPAA compliant VPN and HIPAA application software and related services and providing IT consulting and HIPAA compliant, turnkey managed security and interoperability solutions across our network to healthcare and other industries.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2006

During the three months ended March 31, 2007 our revenue was $1,361,067 versus $935,649 for the three month period ended March 31, 2006. This represents an increase of $425,418 and is primarily attributable to our acquisition of the assets of Trilliant Corp. and our efforts to market Medical Grade Network®, our core business.

Our cost of services for the three months ended March 31, 2007 was $733,512 compared to $422,740 for the three months ended March 31, 2006. The increase in cost of services of $310,772 is due to higher interconnect fees and costs associated with the expansion of our Medical Grade Network® services.

Our gross profit for the three months ended March 31, 2007 was $627,555 compared to $512,909 for the three months ended March 31, 2006. Our gross profit as a percentage of sales decreased to 46% for the three months ended March 31, 2007 from 55% for the three months ended March 31, 2006 due to higher interconnect fees and costs associated with the expansion of our Medical Grade Network® services.

We incurred selling, general and administrative expenses (SG&A) of $867,459 for the three months ended March 31, 2007 compared to $477,899 for the three months ended March 31, 2006. The increase in SG&A of $389,560 is primarily attributable to the expansion of our sales and marketing efforts.

We incurred compensation expense of $1,797,125 for the three months ended March 31, 2007 compared to $788,374 for the three months ended March 31, 2006. The increase in compensation expense of $1,008,751 is primarily due to the expansion of our sales and marketing efforts and recording stock option expenses as a result of our adoption of SFAS No. 123R in 2006.

We incurred a net loss of $2,076,206 for the three months ended March 31, 2007 compared to a net loss of $1,012,536 for the three months ended March 31, 2006. The increase of $1,063,670 is due primarily to the expansion of our sales and marketing efforts and an increase in stock option expenses as a result of our adoption of SFAS No. 123R in 2006.

I-4

FORECAST OF GROWTH IN OUR MEDICAL GRADE NETWORK® CUSTOMER BASE

At March 31, 2007, we had approximately 1,075 Medical Grade Network® customers. We are forecasting an increase in the number of Medical Grade Network® customers through 2007.

During 2006 we commenced our national marketing efforts to hospital systems and recently have been successful in securing two initial projects for hospitals outside of Texas. We expect to announce additional successes in the near future and, as a result, we believe that our revenue growth will accelerate in 2007.

The exceptions to the Stark Law that were made in the latter part of 2006 are creating an ideal business environment for Bluegate in 2007 and beyond, and are contributing to the continued expansion of our sales pipeline for our Medical Grade Network® and health care IT services and solutions to healthcare systems and physician practices.

As projected in early 2006, we made our first expansion outside the state of Texas in 2006 and we continued our growth within Texas with the addition of several clients. Our operational focus for 2007 continues to be the build out of the Houston market and strategic expansion to additional markets in Texas and other regions of the country. There is rapidly increasing demand for our networks, technologies, remote management and professional IT services, largely as the result of increasing pressure for health care providers to adopt electronic health records and the favorable health care IT environment created by the Stark Law exceptions.

LIQUIDITY AND CAPITAL RESOURCES

Operations for the three months ended March 31, 2007 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 the health care industry.

As of March 31, 2007, our cash on hand was $209,058; total current assets were $690,366, total current liabilities were $1,906,186 and total stockholders’ deficit was $1,108,118.

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 include the sale of certain assets, reduction in the scope of current operations or the cessation 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

- Capital expenditures

I-5

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), our principal executive officer and principal 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 certain adjustments required by our auditors, predominantly in the area of debt and equity. Specifically, our independent auditors identified deficiencies in our internal controls and disclosure controls related to the term and volatility components included in the calculation of the expense pertaining to warrants and options. Appropriate adjustments 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. Our Chief Financial Officer has implemented revisions and instituted certain checks and balances to our accounting system. Additionally, he has addressed tighter controls over all aspects of financial revenue and expense recognition, as well as improving supervision and training of our accounting staff. We are continuing our efforts to enhance, improve and strengthen our control processes and procedures. 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, our Chief Financial Officer has implemented revisions and instituted certain checks and balances to our accounting system. Additionally, he continues to address tighter controls over all aspects of financial revenue and expense recognition, as well as improving supervision and training of our accounting staff.

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.

I-6

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NONE.

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

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.

ITEM 5. OTHER INFORMATION

NONE

ITEM 6. EXHIBITS

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-1

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:  August 23, 2007	/s/	Stephen J. Sperco
		Stephen J. Sperco,
		Chief Executive Officer

	Bluegate Corporation
Date:  August 23, 2007	/s/	Charles E. Leibold
		Charles E. Leibold,
		Chief Financial Officer

II-2

EX-31.1

EXHIBIT 31.1 – CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Stephen J. Sperco, certify that:

1. I have reviewed this Quarterly Report on Form 10-QSB of Bluegate Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Bluegate Corporation as of, and for, the periods presented in this report;

4. Bluegate Corporation’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Bluegate Corporation and have:

(a) Designed such disclosure controls and procedures, or caused such  disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Bluegate Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of Bluegate Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in Bluegate Corporation’s internal control over financial reporting that occurred during Bluegate Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Bluegate Corporation’s internal control over financial reporting; and

5. Bluegate Corporation’s other certifying officer(s) and I have disclosed,  based on our most recent evaluation of internal control over financial reporting, to Bluegate Corporation’s auditors and the audit committee of Bluegate Corporation’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Bluegate Corporation’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in Bluegate Corporation’s internal control over financial reporting.

Date: August 23, 2007

/s/ Stephen J. Sperco

Stephen J. Sperco

Chief Executive Officer

EX-31.2

EXHIBIT 31.2 – CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Charles E. Leibold, certify that:

1. I have reviewed this Quarterly Report on Form 10-QSB of Bluegate Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Bluegate Corporation as of, and for, the periods presented in this report;

4. Bluegate Corporation’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Bluegate Corporation and have:

a. Designed such disclosure controls and procedures, or caused such  disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Bluegate Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of Bluegate Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in Bluegate Corporation’s internal control over financial reporting that occurred during Bluegate Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Bluegate Corporation’s internal control over financial reporting; and

5. Bluegate Corporation’s other certifying officer(s) and I have disclosed,  based on our most recent evaluation of internal control over financial reporting, to Bluegate Corporation’s auditors and the audit committee of Bluegate Corporation’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or   operation of internal control over financial reporting which are reasonably likely to adversely affect Bluegate Corporation’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in Bluegate Corporation’s internal control over financial reporting.

Date: August 23, 2007

/s/ Charles E. Leibold

Charles E. Leibold

Chief Financial Officer

EX-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, Stephen J. Sperco, the Chief Executive Officer of Bluegate Corporation, hereby certify that Bluegate Corporation 's periodic report on Form 10-QSB, for the period ending March 31, 2007, 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: August 23, 2007	/s/	Stephen J. Sperco
		Stephen J. Sperco
		Chief Executive Officer

EX-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, Charles E. Leibold, the Chief Financial Officer of Bluegate Corporation, hereby certify that Bluegate Corporation's periodic report on Form 10-QSB, for the period ending March 31, 2007, 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: August 23, 2007	/s/	Charles E. Leibold
		Charles E. Leibold,
		Chief Financial Officer