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





PART
      II.   OTHER INFORMATION





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





*Table
            of Contents*





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
              
              $
              256,121Accounts
                  receivable, net
              
              
              448,977
              
              
              280,353Inventory
              
              
              6,297
              
              
              15,652Prepaid
                  expenses and other
              
              
              26,034
              
              
              33,295Total
                  current assets
              
              
              690,366
              
              
              585,421Property
                  and equipment, net
              
              
              93,749
              
              
              92,033Intangibles,
                  net
              
              
              13,953
              
              
              12,301Total
                  assets
              
              $
              798,068
              
              $
              689,755**LIABILITIES
                  AND STOCKHOLDERS’ DEFICIT**Current
                  liabilities:Accounts
                  payable
              
              $
              210,780
              
              $
              296,567Accrued
                  liabilities
              
              
              117,986
              
              
              85,626Note
                  payable to individual
              
              
              315,000
              
              
              -Note
                  payable
              
              
              12,800
              
              
              12,800Notes
                  payable to related parties
              
              
              150,481
              
              
              122,174Bank
                  line of credit payable
              
              
              44,546
              
              
              44,590Deferred
                  revenue
              
              
              1,054,593
              
              
              1,189,236Total
                  current liabilities
              
              
              1,906,186
              
              
              1,750,993Commitments
                and contingenciesStockholders’
                  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
              
              
              12,130Additional
                  paid-in capital
              
              
              21,655,023
              
              
              19,627,159Accumulated
                  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
 *Table
            of Contents*





**BLUEGATE
                  CORPORATION****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****THREE
                  MONTHS ENDED MARCH 31, 2007 AND 2006****UNAUDITED****March
                  31,****2007**
              
              **2006**Service
                  revenue
              
              $
              1,361,067
              
              $
              935,649Cost
                  of services
              
              
              733,512
              
              
              422,740Gross
                  profit
              
              
              627,555
              
              
              512,909Selling,
                  general and administrative expenses
              
              
              867,459
              
              
              477,899Compensation
                  expense
              
              
              1,797,125
              
              
              788,374Loss
                  from operations
              
              
              (2,037,029
              )
              
              (753,364
              )Interest
                  expense
              
              
              (39,177
              )
              
              (263,385
              )Other
                  income
              
              
              -
              
              
              4,213Net
                  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
 *Table
          of Contents*




**BLUEGATE
                  CORPORATION****CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS' DEFICIT****THREE
                  MONTHS ENDED MARCH 31, 2007****UNAUDITED**ADDITIONALCOMMON
                  STOCK
              
              PAID-IN
              
              ACCUMULATEDSHARES
              
              CAPITAL
              
              CAPITAL
              
              DEFICIT
              
              TOTALBalance
                  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
              
              
              
              
              
              400,000Issuance
                  of common stock for compensation
              
              
              150,000
              
              
              150
              
              
              142,350
              
              
              
              
              
              142,500Issuance
                  of common stock for services
              
              
              421,773
              
              
              422
              
              
              329,103
              
              
              
              
              
              329,525Common
                  stock options issued for services
              
              
              
              
              
              
              
              
              1,011,156
              
              
              
              
              
              1,011,156Issuance
                  of common stock and warrants accounted for:-
                  accounts payable
              
              
              30,000
              
              
              30
              
              
              14,970
              
              
              
              
              
              15,000-
                  services
              
              
              60,000
              
              
              60
              
              
              131,085
              
              
              
              
              
              131,145Net
                  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
 *Table
          of Contents*


**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
              
              
              -
              
              
              242,316Depreciation
                  and amortization
              
              
              13,918
              
              
              20,151Common
                  stock issued for services
              
              
              329,525
              
              
              16,220Common
                  stock options issued for services
              
              
              1,011,156
              
              
              294,926Common
                  stock issued for compensation
              
              
              142,500
              
              
              -Common
                  stock and warrants issued for services
              
              
              131,145
              
              
              -Accounts
                  receivable
              
              
              (168,623
              )
              
              85,118Prepaid
                  expenses and other current assets
              
              
              16,615
              
              
              (2,741
              )Accounts
                  payable and accrued liabilities
              
              
              (38,426
              )
              
              (25,311
              )Deferred
                  revenue
              
              
              (134,644
              )
              
              151,948Net
                  cash used in operating activities
              
              
              (773,040
              )
              
              (229,909
              )Cash
                  flows from investing activities:Proceeds
                  from note receivable
              
              
              -
              
              
              32,000Purchase
                  of property and equipment
              
              
              (17,287
              )
              
              (1,457
              )Net
                  cash (used in) provided by investing activities
              
              
              (17,287
              )
              
              30,543Cash
                  flows from financing activities:Change
                  in bank overdraft
              
              
              -
              
              
              68,365Proceeds
                  from related party short term debt
              
              
              241,753
              
              
              375,394Payments
                  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
              
              
              195,000Net
                  cash provided by financing activities
              
              
              743,264
              
              
              527,660Net
                  (decrease) increase in cash and cash equivalents
              
              
              (47,063
              )
              
              328,294Cash
                  and cash equivalents at beginning of period
              
              
              256,121
              
              
              27,791Cash
                  and cash equivalents at end of period
              
              $
              209,058
              
              $
              356,085Non
                  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
 *Table
            of Contents*





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 payablesecured
                  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
              
              $
              41,910Notes
                  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
 *Table
            of Contents*





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
              
              $
              4,98375,000
              
              
              0.75
              
              
              56,069
              
              
              2/2/2012
              
              Through
                  1/08
              
              
              9,344100,000
              
              
              0.75
              
              
              74,759
              
              
              2/5/2012
              
              Immediately
              
              
              74,75950,000
              
              
              0.86
              
              
              42,862
              
              
              2/19/2012
              
              Immediately
              
              
              42,86250,000
              
              
              0.82
              
              
              40,868
              
              
              3/19/2012
              
              Immediately
              
              
              40,868325,000
              
              
              
              
              $
              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
 *Table
            of Contents*





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
 *Table
            of Contents*





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.





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 *Table
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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
            
            2006Net
                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
 *Table
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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
 *Table
            of Contents*





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
 *Table
            of Contents*





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
 *Table
            of Contents*





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
            
            Name31.1
            
            Certification
                pursuant to Section 13a-14 of CEO31.2
            
            Certification
                pursuant to Section 13a-14 of CFO32.1
            
            Certification
                pursuant to Section 1350 of CEO32.2
            
            Certification
                pursuant to Section 1350 of CFO




II-1
 *Table
            of Contents*





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
                    CorporationDate:  August
                    23, 2007
                /s/
                Stephen
                    J. SpercoStephen
                    J. Sperco,Chief
                    Executive Officer
  
 Bluegate
                    CorporationDate:  August
                      23, 2007
                  /s/
                  Charles
                      E. LeiboldCharles
                      E. Leibold,Chief
                      Financial Officer






II-2