ex10-7.htm


    Exhibit 10.7

    FAIRNESS
OPINION

    


    


    


    


    Prepared
in conjunction with

    A
Sale & Purchase of Assets by

    


    Bluegate
Corporation

    ("SELLER")

    


    And

    


    A
Sperco Entity, Trilliant Corporation and SAI Corporation

    ("PURCHASERS")

    


    


    


    November
6, 2009

    


    


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    


    November
6, 2009

    


    Mr.
Charles Leibold

    Chief
Financial Officer

    Bluegate
Corporation

    701 North
Post Oak Road, Suite 600

    Houston,
Texas 77024

    


    


    Dear Mr.
Leibold:

    


    Convergent
Capital Appraisers, LLC (CCA) has been engaged by Bluegate Corporation (Company
or Bluegate or BGAT) to render a Fairness Opinion in regard to the following
described transactions.

    


    Stephen Sperco (through a
Sperco entity controlled by him) will purchase certain assets from Bluegate
Corporation (“BGAT”) with payment made by a combination of cash and the
conversion of debt. The assets to be purchased will be the BGAT Medical Grade
Network (“MGN”) operation that supports clients with field engineers,
consulting, and the sale of product. Trilliant Corporation will purchase certain
assets from BGAT with a cash payment. The assets to be purchased will be the
Trilliant Technology Groups (“TTG”) consulting operation. SAI Corporation
(“SAIC”) will purchase certain assets from BGAT in exchange for a Mutual Release
in Full of certain claims. The assets to be purchased will be the Healthcare
Information Management Systems (“HIMS”) consulting operation.  The
remaining  Carrier/Circuit business  will remain in Bluegate
Corporation.

    


    


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    Compliance
Standards - 5150 Fairness Opinions*

    While
we are not specifically bound by the pronouncements of the Financial Industry
Regulatory Authority, Inc. (FINRA- formerly the National Association of
Securities Dealers NASD), it is our assessment that since the guidelines have
been endorsed by the United States Securities and Exchange Commission (SEC) as
being consistent with current disclosure regulations, we believe it prudent to
comply with the following disclosures.

    *This
rule was introduced with the filing of SR-FINRA-2008-028 which has been approved
by the SEC. This rule became effective on December 15, 2008.

     

    Disclosures

    If at the
time a fairness opinion is issued to the board of directors of a company the
member issuing the fairness opinion knows or has reason to know that the
fairness opinion will be provided or described to the company's public
shareholders, the member must disclose in the fairness opinion:

    
      	
               
      

            	
              (1)
      if the member has acted as a financial advisor to any party to the
      transaction that is the subject of the fairness opinion, and, if
      applicable, that it will receive compensation that is contingent upon the
      successful completion of the transaction, for rendering the fairness
      opinion and/or serving as an advisor;

               

            


    

    
      	
               
      

            	
              (2)
      if the member will receive any other significant payment or compensation
      contingent upon the successful completion of the transaction;

               

            


    

    
      	
               
      

            	
              (3)
      any material relationships that existed during the past two years or that
      are mutually understood to be contemplated in which any compensation was
      received or is intended to be received as a result of the relationship
      between the member and any party to the transaction that is the subject of
      the fairness opinion;

               

            


    

    
      	
               
      

            	
              (4)
      if any information that formed a substantial basis for the fairness
      opinion that was supplied to the member by the company requesting the
      opinion concerning the companies that are parties to the transaction has
      been independently verified by the member, and if so, a description of the
      information or categories of information that were verified;

               

            


    

    
      	
               
      

            	
              (5)
      whether or not the fairness opinion was approved or issued by a fairness
      committee; and

               

            


    

    
      	
               
      

            	
              (6)
      whether or not the fairness opinion expresses an opinion about the
      fairness of the amount or nature of the compensation to any of the
      company's officers, directors or employees, or class of such persons,
      relative to the compensation to the public shareholders of the
      company.

            


    

    


    Disclosure
Responses

    CCA has
not had and does not anticipate any involvement in the foregoing transaction
except to the extent of rendering this opinion regarding the fairness of the
transaction.

    


    CCA’s
compensation in this matter is being paid by Bluegate Corporation and is based
upon hourly rates and a total fee estimate that has been contractually
agreed.

    


    The only
relationship with Bluegate and CCA is through the predecessor firm of McClure,
Schumacher & Associates, LLP which provided valuation services relative to
accounting issues and FASB 141 in conjunction with the purchase of Trilliant in
2006 and 2007.

    


    We have
not attempted to verify independently public or private information considered
in our valuation.

    


    We have
expressed no opinions regarding the compensation of any parties to this
transaction.

    


    Conclusion

    Based
upon the criteria outlined in this report, and based upon our research and
analysis, it is our opinion that: (i) the overall terms and conditions of the
Purchase Transaction are fair from a financial point of view and (ii) pursuant
to the Transaction Terms, the shareholders of Bluegate are receiving no less
than adequate consideration.

     

    Company
Overview

    The
following business description is taken from the Company’s second quarter 10Q,
filed in July 2009.  The Company has been trying to establish itself
as a leader in the healthcare information technology business.  The
efforts have not been successful as indicated by the subsequent financial
information that shows continuous losses and the auditor’s opinion regarding
questions of “going concern.”

    


    OUR
BUSINESS

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

    


    CONSULTING
PRACTICE

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

    


    OUTSOURCING

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

    


    SYSTEMS
INTEGRATION AND MANAGED SECURITY SOLUTIONS

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

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    MARKET
OPPORTUNITY IN HEALTHCARE

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

    
 

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

    
 

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

    
 

    BLUEGATE
STRATEGY

    Healthcare

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

    
 

    Professional
Services

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

    
 

    GOING
CONCERN ISSUES

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

    
 

    During
the six months ended June 30, 2009 and the year ended December 31, 2008, we have
been unable to generate cash flows sufficient to support our operations and have
been dependent on debt and equity raised from qualified individual investors and
loans from a related party.

     

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

    

    


    
      	
              Six
      Months Ended June 30,

            	 	
              2009

            	 	 	
              2008

            	 
	
              Net
      loss

            	 	$	(41,102	)	 	$	(1,424,496	)
	
              Negative
      cash flow from operations

            	 	$	(127,269	)	 	$	(208,669	)
	
              Negative
      working capital

            	 	$	(1,505,020	)	 	$	(1,243,245	)
	
              Stockholders'
      deficit

            	 	$	(1,477,367	)	 	$	(1,189,289	)


    

    


    


    


    
 

    These
factors raise substantial doubt about our ability to continue as a going
concern. The financial statements contained herein do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should we be unable to continue in existence. Our ability to continue as a going
concern is dependent upon our ability to generate sufficient cash flows to meet
our obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitable operations. However, there is no
assurance that profitable operations or sufficient cash flows will occur in the
future.

    


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

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

    


    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.

    


    


    Updated
Financial Analysis

    In
preparing this report, we requested that Management through Mr. Charles Leibold
prepare an updated assessment of the financial picture of the Company as of the
middle of October 2009.  The response is as follows:

    


    
      	
              ·  

            	
              Bluegate
      Corporation is a public company traded on the OTCBB with 26 million shares
      outstanding (50% of the outstanding shares are owned by three directors
      who have differences among
themselves).

            


    

    


    
      	
              ·  

            	
              Bluegate
      has had negative cash flow problems for several years and has never
      received a clean opinion from the external auditors which have
      consistently cited “going concern”
issues.

            


    

    


    
      	
              ·  

            	
              Revenue is decreasing as two
      lines of business Trilliant Techology Group (TTG) and Healthcare
      Information Management Systems (HIMS) have not generated any substantial
      new business over the past year and will go dormant by end of November
      2009.  (2009 first half of year had
      Revenue of ~$2M with P/L at around break-even, 2009 Q3 will have Revenue
      ~$760K with a loss from operations of ~$60K, and Forecast for 2009 Q4 is
      Revenue ~$460K with a loss from operations of
    ~$300K)

            


    

    


    
      	
              ·  

            	
              Current
      liabilities (there is no long term debt) of approximately $1,900,000
      exceed current assets of approximately $300,000.  Of the
      $1,900,000 of liabilities, approximately $1,500,000 is owed to related
      parties - Single secured creditor for $1,300,000 with UCC filing on all of
      the Company’s assets and stock (from entity controlled by CEO/Director)
      and approximately $90,000 from two Directors who were formerly
      officers.

            


    

    


    
      	
              ·  

            	
              Operation
      will not have cash to sustain another 30-45
days

            


    

    


    


    Items
of Intangible Value within Bluegate – Not Included in the Sale

    Public
filings indicate that the Company has a negative net worth based on tangible
assets.  The following analysis examines the items of value that may
not be reported on the financial statements at fair value as defined
below.

    


    The
Statement of Financial Accounting Standards No. 157(FAS 157)

    “Fair
Value” is defined in FAS 157 as: the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.  Because that exit price
objective applies for all assets and liabilities measured at fair value, any
fair value measurement requires that the reporting entity
determine:

    
      	
               
      

            	
              ·
      The particular asset or liability that is the subject of the measurement
      (consistent with its unit of
account);

            


    

    
      	
               
      

            	
              ·
      For an asset, the valuation premise appropriate for the measurement
      (consistent with its highest and best
use);

            


    

    
      	
               
      

            	
              ·
      The principal (or most advantageous) market for the asset or liability
      (for an asset, consistent with its highest and best
  use);

            


    

    
      	
               
      

            	
              ·
      The valuation technique(s) appropriate for the measurement, considering
      the availability of data with which to develop inputs that represent the
      assumptions that market participants would use in pricing the asset or
      liability and the level in the fair value hierarchy within which the
      inputs fall.

            


    

    


    At the
end of the business description filed with the SEC (excerpted previously), there
is a note regarding networking services.  This operation appears to be
the only one that has on-going value because there is an expectation that it
will generate a consistent flow of cash flow in excess of the cost of
services.  It provides internet connectivity to corporate clients on a
subscription basis; essentially operating as a broker.  It has several
customers and expects to generate about $350,000 in revenue and net about
$180,000 in gross margin or profit.  In addition, whenever there are
technical issues or an opportunity to provide IT support, those tasks have
traditionally been referred to other operations within the Company or to outside
contractors.  This operation is NOT included in the contemplated
transactions and it is to remain with Bluegate Corporation.

    


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    Terms
of the Deal

    A Sperco
entity is an entity owned by Mr. Stephen Sperco who is also the largest
shareholder of Bluegate Corporation (BGAT) holding 4.5 million out of a total of
26 million shares outstanding.  The MGN tangible and intangible assets
purchased from BGAT will be moved into a Sperco entity and the HIMS tangible
assets purchased from BGAT will be moved into SAI Corporation (“SAIC”) which an
entity is owned by Stephen Sperco.

    


    Sperco
entity’s’s purchase price for the MGN assets will consist of $100,000 cash and
$100,000 in forgiveness of debt, plus an adjustment on a dollar for dollar basis
for any working capital.  SAI C’s purchase price for the HIMS assets
will consist of a Mutual Release in Full of certain claims. The only tangible
assets to be transferred will be about $40,000 worth of furniture, fixtures and
electronic equipment that are part of the MGN and HIMS operations.

    


    The
intangible assets include the following:

    
      	
              1.  

            	
              Medical
      Grade Network

            


    

    
      	
              a.  

            	
              a
      registered mark – “Medical Grade
Network”

            


    

    
      	
              b.  

            	
              a
      workforce of about 11 people

            


    

    
      	
              c.  

            	
              approved
      vendor status for the following:

            


    

     

    
      	
              MHHNP

            	
              Memorial
      Hermann Health Ntwrk Prov-9401

            
	
              Northwestern
      Memorial Hospital

            	
              Bone
      and Joint Clinic of Houston

            
	
              Renaissance
      HealthCare Systems

            	
              Global
      Imaging

            
	
              Memorial
      Hermann Health Sys-Radiology

            	
              Malcolm
      Bremer, MD

            
	
              Houston
      Digestive Disease Consultants

            	
              Southwest
      Nephrology Associates, LLP

            
	
              Advanced
      Orthopedics & Sports Medicine

            	
              Cindy
      Ivanhoe, MD, PA

            
	
              Diabetes
      Centers of America

            	
              Northwest
      Oral Maxillofacial Surgery

            
	
              G.I.
      Specialists of Houston, LLP

            	
              Women's
      Healthcare of Houston

            
	
              Memorial
      MRI & Diagnostic

            	
              Neurology,
      Headache & Pain

            
	
              Houston
      Allergy & Asthma Associates

            	
              Houston
      Fertility Institute

            
	
              Urology
      Associates

            	
              Memorial
      Hermann Home Health

            
	
              Pulmonary
      Critical Care & Sleep Medicine

            	
              Cardiology
      Associates of Houston

            
	
              Texan
      Imaging Centers (formerly Okomed)

            	
              Center
      for Pain Recovery, PA

            
	
              Gateway
      To Care

            	
              Dynamic
      Orthotics and Prosthetics

            
	
              Leachman
      Cardiology Associates, PA

            	
              US
      Imaging

            


    

    


    
      	
              2.  

            	
              Healthcare
      Information Management Systems

            


    

    Since the
HIMS operation has no on-going business it will go dormant by the end of
November 2009, and it is our assessment that without on-going operations this
operation has no intangible fair value.

    
      	
              3.  

            	
              Trilliant
      Corporation’s (“Trilliant”) (a company owned by William Koehler, former
      Director/Corporate Officer of BGAT) purchase price for Trilliant
      Technology Group, Inc’s. (“TTG”) assets of $5,000 cash and will
      include:

            


    

    
      	
              a.  

            	
              the
      Trilliant corporate name

            


    

    
      	
              b.  

            	
              future
      revenues of about $20,000 (residual work on two ending contracts – which
      will require hiring contract labor which is expected to cost as much as
      the revenue)

            


    

    


    In
additional to the tangible and intangible assets, it is important to note the
following circumstances and details regarding the transaction.

    


    
      	
              1.  

            	
              Lease
      and Labor

            


    

    
      	
              a.  

            	
              BGAT
      is obligated on a building lease for 7,290 square feet that runs until
      2013 and costs about $9,000 per
month.

            


    

    
      	
              b.  

            	
              BGAT
      requires only five or six people to operate its carrier
      business

            


    

    
      	
              c.  

            	
              The
      new Sperco entity will require less than 2,000 square feet for all its
      operations post transaction.  This would equate to about 27% of
      the space or about $2,500 per
month.

            


    

    
      	
              d.  

            	
              The
      new Sperco entity has agreed to supply BGAT with accounting and
      administrative staff, as well as technical support for the carrier
      business, at no charge in exchange for free
  rent.

            


    

    
      	
              e.  

            	
              BGAT
      intends to sublease as much of the space as possible as soon as
      possible.

            


    

    
      	
              f.  

            	
              Occupancy
      by the new Sperco entity will defer to BGAT’s needs and
      opportunities.

            


    

    


    
      	
              2.  

            	
              Carrier
      or Connectivity Operation

            


    

    
      	
              a.  

            	
              This
      operation is staying with BGAT

            


    

    
      	
              b.  

            	
              This
      is the only operation of BGAT that has been adequately
      profitable.

            


    

    
      	
              c.  

            	
              The
      new Sperco entity is acquiring the Medical Grade Network operation which
      provides maintenance support to BGAT’s Carrier customers.  As
      part of the transaction, Sperco agrees to continue providing that
      support.

            


    

    


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    
      	
              3.  

            	
              Medical
      Grade Network (MGN) Operation – Fair Value
  Assessment

            


    

    
      	
              a.  

            	
              Revenues
      have been declining over the last three years as indicated by the
      following table.  They appear to have stabilized in 2009 at
      around $100,000 per month.  The increase in revenues in quarter
      3 of 2009 is attributed to several larger dollar projects that are not
      expected to recur at the historic
levels.

            


    

    
      	
              b.  

            	
              For
      the nine months ended September 2009, this entity generated slightly more
      than $900,000 in revenues and produced a gross margin (profit after direct
      costs) of $130,000 or about 14%.  However, after including
      direct labors costs (reported as compensation) of $150,000, the operation
      lost $20,000.

            


    

    
      	
              c.  

            	
              It
      must be noted that BGAT’s corporate overhead expense to maintain this
      business operation far exceeds an industry norm of 10%, which accounts in
      part for continuing ongoing losses.

            


    

    
      	
              d.  

            	
              It
      is our assessment that while “Medical Grade Network” has been registered
      as a proprietary service mark, it does not appear (based on the trend of
      revenues and with no pending contracts) to have developed independent
      commercial recognition.  What value does exist is subsumed
      within the forecast cash flows as previously
  analyzed.

            


    

     

    
    

    

    


    
      	
              4.  

            	
              Healthcare
      Information Management Systems (“HIMS”) Operation – Fair Value
      Assessment

            


    

    
      	
              a.  

            	
              Revenues
      have been steadily declining during the nine months ended September 2009
      and the remaining two contracts will end during November
    2009.

            


    

    
      	
              b.  

            	
              Since
      the HIMS operation has no on-going business it will go dormant by the end
      of November 2009, and it is our assessment that without on-going
      operations this operation has no intangible fair
  value.

            


    

    


    
      	
              5.  

            	
               Trilliant
      – Fair Value Assessment

            


    

    
      	
              a.  

            	
              This
      entity has no work force as of the end of September 2009 because of a lack
      of on-going projects.

            


    

    
      	
              b.  

            	
              The
      remaining $20,000 in contract revenues will be earned through the use of
      outside contractors (former Trilliant employees).  The
      expectation is that the additional cost of using outside contractors
      rather than employees will consume any profit
  potential.

            


    

    
      	
              c.  

            	
              The
      Trilliant name has not been established as a brand although it may be
      recognized among previous
customers.

            


    

    
      	
              d.  

            	
              Given
      there are no pending contracts and no pending bids, the value of the
      Trilliant name is considered to be minimal at
  best.

            


    

    
       

    

    


    Motivation
for the Transaction

    
       

    

    BGAT has
not been profitable since inception and the business model has proven to be
unsuccessful.  According to Yahoo Finance, the Company has not
attracted any mutual fund or institutional investors.  About 13.0
million of the 26 million shares outstanding – about 1⁄2 are held by three
individuals and one company.  The price of a share has declined from
dollars to pennies over the last eight years and volume is
negligible.

    
To
resurrect the various operations will require expenditures for marketing and
business development.  Given the poor stock performance, it is
unlikely that funds could be raised through a stock offering.  The
cash flow statement at right shows that over the past two calendar years,
approximately $6.25 million ($4.85 mil + $1.40 mil) has been raised through the
issuance of stock, options and warrants to fund operating losses which total
approximately $6.9 million over the two years ($1.8 mil + $5.1
mil).

    


    All of
the Company’s assets are pledged against more than $1 million in debt, so it is
unlikely that loans could be secured from traditional lending
sources.

    


    It is our
assessment that BGAT has approached a financial impasse that has required
drastic measures if bankruptcy is to be avoided.

    


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    Financial
tension within the organization has been caused by reduced compensation and
exchanging paychecks for stock as well as major internal
restructuring.  This has lead to discord among the current and former
Directors which has the potential to escalate to legal action.  If
lawsuits are brought into this already dire financial situation, the cost and
time delays will undoubtedly destroy what little value is left and bankruptcy
will most surely be the inevitable conclusion to BGAT’s existence.

    
 

    The
proposed strategy is to minimize the loss and avoid
bankruptcy.  Management believes that first and foremost, the
potential litigation must go away if progress is to be made.  To that
end, it is our understanding that about $90,000 of the $100,000 cash purchase
price paid to BGAT for the MGN assets will be used to repay loans from Mr.
Sternberg and Mr. Koehler (two former Directors/employees/corporate
officers).  In exchange, they will provide full release and waivers of
all claims.

     

    


    


    

     

    Common
Shareholder Dilution

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    As
indicated by the balance sheet at right, even with an infusion of $100,000 and
the forgiveness of $100,000 of debt, shareholders’ equity will still be
negative.  We see from the previous financial statements that the
Company has amassed large losses in the last two years and funded those losses
with dilutive shares.  Approximately $1.4 million of cash was raised
while $4.8 million of shares / options / warrants were issued to cover
expenses.

     

    


    While the
rate of loss has decreased in the last year, there is every expectation that
losses will continue if operations are allowed to continue.  To cover
those losses, more and more shares will likely be issued as there is no
collateral for loans.

    


    Continuing
to operate in this fashion will be detrimental to the common shareholders as
their ownership value continues to be diluted.

    


    Without
the Sperco entity purchase, the common shareholders have little or no hope of
realizing any return on their investment.

    


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     Purchase
Prices Relative to Fair Value and Fairness

    Given the
dire financial condition of BGAT, it is unrealistic to suggest that MGN be
placed with a business broker to sell because that would likely require between
six months and a year to locate a buyer and close the
transaction.  Moreover, given the revenue trends, and a lack of future
contracts, it is uncertain whether a buyer could be found, particularly in a
down economy with tight credit.

    


    Sperco
(through entities controlled by him) will be contributing the following
values

    
      	
              ·  

            	
              Cash
      - $100,000

            


    

    
      	
              ·  

            	
              Forgiveness
      of Debt $100,000

            


    

    
      	
              ·  

            	
              Accounting
      and administrative services and technical support for the carrier business
      as needed in exchange for short term free
rent.

            


    

    


    The
determination of fairness is a measurement of relative values.  Does
one party to the transaction benefit disproportionately and to the detriment of
another party.  In this case, the question is whether the Sperco
entity, SAIC and Trilliant will benefit to the detriment of the common
shareholders.

    


    Our
analysis of the fair value of the MGN assets included in this transaction
indicates that if anything, the price of $200,000 is likely a high price. The
total tangible collateral in this transaction is something less than $40,000
which means a loan value in the $30,000 range or less.  TTG has no
on-going operations while MGN and HIMS’s operations have been trending
downward.

    


    We know
that these three operations are insufficient to support BGAT’s overhead and if
they are not sold in short order, they will likely cease to exist.

    


    Without
these sales, BGAT will continue to be in default on its loans and given the
state of financial resources, will be forced to file for bankruptcy
protection.  Between legal and trustee fees, what few resources are
left will be consumed and the common shareholders will receive
nothing.

    


    Conclusion

    Based
upon the foregoing evidence and analysis, it is our opinion that this
transaction is fair from a financial point of view as it provides the common
shareholders with more value than any other likely
scenario.  Moreover, the prices being paid to BGAT is assessed as
meeting or exceeding what we have determined to be a fair value for the assets
to be sold to the Sperco entity, SAIC and Trilliant.

    


    Certification

    In
rendering our opinion, we have relied without independent verification upon the
accuracy and completeness of the financial and other information provided by
Bluegate Corporation and their agents.

    


    We have
assumed such information to be correct and complete in all material
aspects.

    


    We have
not attempted to independently verify public or private information considered
in our valuation.

    


    We have
held discussions with Management regarding the condition and outlook for its
operations, and have made such other investigations and analyses, as we have
deemed necessary.

    


    We have
assumed that there has been no material change in Bluegate Corporation’s
financial condition, results of operations, business or prospects since the date
of the last financial statements unless otherwise noted.

    


    We
believe that the analysis of management’s anticipated performance and resulting
lack of cash flow is a reasonable estimation, based upon past performance and
based on the information available to us at this time.  In addition,
Bluegate Corporation’s management has represented that there are no pending
contracts or work in progress that have not been disclosed.

    


    The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to the particular
circumstances.  Therefore, such an opinion is not readily susceptible
to the partial analysis or summary description.  Furthermore, in
arriving at our opinion, we did not attribute any particular weight to any
specific analysis or factor.  Rather, we have made qualitative
judgments as to the significance and relevance of each.

    


    Accordingly,
Convergent Capital Appraisers believes that our analysis must be considered as a
whole.

    


    In our
analyses, we made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Bluegate Corporation.  Any estimates contained
in these analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than as set forth therein.

    


    Convergent
Capital Appraisers or through a predecessor firm McClure, Schumacher and
Associates, LLP have previously performed independent valuations of Bluegate
Corporation or related entities.

    


    Neither
Convergent Capital Appraisers nor the individuals involved with this analysis
have any present or contemplated future interest in the Plan or Bluegate
Corporation or any other interest that might tend to prevent making a fair and
unbiased appraisal.

    


    These
conclusions are based upon methodologies and financial fairness considerations
that we deem appropriate.  In accordance with recognized professional
ethics, our fees for this service are not contingent upon the opinions expressed
herein.

    


    This
Opinion is delivered subject to the conditions, scope of the engagement,
limitations and understandings set forth in this Opinion and our engagement
letter.

    


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    Convergent
Capital Appraisers’ fees and expenses are being paid by Bluegate Corporation and
certain covenants and representations have been made by Bluegate
Corporation.

    


    Sincerely,

    


    By: /s/ Jeffrey A. Schumacher

    Jeffrey
A. Schumacher

    


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    Interviews

    Multiple
teleconferences were held with Mr. Charles Leibold over the period of October 21
through November 6, 2009.  The report has been submitted in draft form
to the Board of Directors for review and comment.

    


    Upon
receiving the Board’s comments and suggestions, the report was finalized and
signature affixed.

    


    Bibliography

    


    
      	
              ·  

            	
              Bluegate
      Corporation SEC filing 10Q for the quarters ended 2005 –
    2008

            


    

    
      	
              ·  

            	
              Internally
      prepared financial statements and supporting as well as specially prepared
      related schedules for the nine months ended September
      2009

            


    

    
      	
              ·  

            	
              Synopsis
      of the purchase and sale contract between the Sperco entity and Bluegate
      Corporation

            


    


    
      
         


      

      
        12

        
          

        

      

      
         


      

    


    Curriculum
Vitae

    Jeffrey
A. Schumacher, CPA, ABV, ASA

    


    EDUCATION &
CERTIFICATIONS

    Certified
Public Accountant (CPA) State of Texas

    Accredited
in Business Valuation (ABV)

    American Institute of Certified Public
Accountants

    Accredited
Senior Appraiser / Business Valuation (ASA)

    American Society of
Appraisers

    B.B.A.  (1976)
Finance Major  Valparaiso University

    


    PROFESSIONAL
AFFILIATIONS

    American
Institute of Certified Public Accountants

    American
Society of Appraisers – Accredited Senior Member

    ASA
Houston Chapter Treasurer 2003-2004

    ASA
Houston Chapter President 2004-2005

    


    PROFESSIONAL
EXPERIENCE

    


    2007 -
Present                                FOUNDER
and MANAGING MEMBER

    Convergent Capital Appraisers
LLC

    Houston, Texas

     

    
      	
               
      

            	
              Business
      valuation, forensic analysis, special issue damages, business interruption
      claims, interim management, litigation support, family law issues,
      valuation and consulting in mergers and acquisitions, partnership
      dissolutions, dissenting stockholder disputes, ESOP appraisals,
      partnership disputes, insurance fraud, patent infringement and estate and
      gift taxation issues.  Jeff was a pioneer in the design of
      business valuation software beginning in the early
  1980s.

            


    

     

    


    1996 -
2007                                FOUNDER
and PARTNER

    McClure, Schumacher & Associates
L.L.P.

    Houston, Texas

     

    
      	
               
      

            	
              Business
      appraisal, litigation support, financial consulting and mergers and
      acquisitions

            


    

     

    


    1990 -
1996                                FOUNDER
and PARTNER

    Smith & Schumacher

    Houston, Texas

     

    
      	
               
      

            	
              Business
      appraisal, litigation support, financial consulting and mergers and
      acquisitions

            


    

     

    


     

    


     

    1983 -
1990                                ANALYST

     

    
      	
               
      

            	
              Served
      as a contract financial analyst for several valuation firms in Houston and
      Dallas, Texas.  These firms included Certified Business Brokers,
      Abraham & Associates, Highview Services, Aden-Smith, and American
      Business Group.

            


    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    SPEAKING
ENGAGEMENTS

    
      	
               
      

            	
              Texas Society of
      Certified Public Accountants

            


    

    
      	
               
      

            	
              1995,
      1996, 1997 Asset Protection through Family Limited
      Partnerships

            


    

     

    
      	
               
      

            	
              1994
      Litigation Support Conference – Commercial vs. Personal
      Goodwill

            


    

     

    
      	
               
      

            	
              1997
      Litigation Support Conference - Discounts – What’s
  Fair

            


    

    
      	
               
      

            	
              1997
      Galveston Family CPE Conference - Basics of Business
    Valuation

            


    

    
      	
               
      

            	
              1998
      Galveston Family CPE Conference - Use and Abuse of
    Discounts

            


    

    
      	
               
      

            	
              1999
      South Texas School of Law – Litigation Support Conference –Daubert
      Discussion Panelist

            


    

    
      	
               
      

            	
              2000
      Advanced Family Law Conference – Internet Research &
    Sites

            


    

    
      	
               
      

            	
              2000
      South Texas School of Law – Litigation Support Conference – Damage Models
      Discussion Panelist

            


    

    
      	
               
      

            	
              AWSPA-ASWA 54th Annual
      Conference

            


    

    
      	
               
      

            	
              1994  Basic
      Business Valuation Techniques and
Issues

            


    

    
      	
               
      

            	
              Houston Bar
      Association, Family Law
Section

            


    

    
      	
               
      

            	
              1995
      Appraising the Appraiser: Family Law
Valuations

            


    

    
      	
               
      

            	
              2003
      Section 1041 and Marital Property
Divisions

            


    

    
      	
               
      

            	
              American Society of
      Appraisers

            


    

    
      	
               
      

            	
              1998
      Daubert & Robinson

            


    

    
      	
               
      

            	
              Northeast Harris
      County Bar Association

            


    

    
      	
               
      

            	
              2000
      Equitable Interest

            


    

    
      	
               
      

            	
              University of
      Houston

            


    

    
      	
               
      

            	
              2002
      Business Valuation - Discounts

            


    

    
      	
               
      

            	
              2003
      Business Valuation - Discounts

            


    

    
      	
               
      

            	
              2004
      Business Valuation – Discounts

            


    

    
      	
               
      

            	
              Financial Consulting
      Group

            


    

    
      	
               
      

            	
              2004
      A multiple Regression Model for Predicting
  Discounts

            


    

    
      	
               
      

            	
              Materials Marketing
      Associates, Inc.

            


    

    
      	
               
      

            	
              2008
      Annual Meeting, Miami, FL – Business Valuation and Exit
      Strategies

            


    

    


    


    PUBLICATIONS

    Houston Business Journal
July 16-22, 1999

    So How Much Is My Closely Held Business
Worth?

    Houston Business Journal May
16-22, 2003

    Small Business Owners May Face Big
Challenges in Divorce Court

    Valuation Strategies
September/October 2005

    Estimating Minority Interest
Discounts

    



    
      
         


      

      
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