U.S.
      SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-QSB








x QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      quarterly period ended June 30, 2006





 ̈ 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 630, 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  ̈





Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).   Yes  ̈ No x




APPLICABLE
      ONLY TO CORPORATE ISSUERS





State
      the
      number of shares outstanding of each the issuer's classes of common equity,
      as
      of the latest practicable date: 8,743,940 common shares outstanding as of August
      1, 2006.





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















BLUEGATE
      CORPORATION


TABLE
      OF
      CONTENTS


__________





PART
      I.
      FINANCIAL INFORMATION







ITEM
                1.
            FINANCIAL
                STATEMENTSUnaudited
                Consolidated Financial Statements
            F-1Unaudited
                Consolidated Balance Sheets as of June 30, 2006 and
                December 31, 2005
            F-1Unaudited
                Consolidated Statements of Operations for the three
                months and six months ended June 30, 2006 and 2005
            F-2Unaudited
                Consolidated Statements of Cash Flows for the six
                months ended June 30, 2006 and 2005
            F-3Notes
                to Unaudited Consolidated Financial
                Statements
            F-5ITEM
                2.
            MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION
            I-1ITEM
                3.
            CONTROLS
                AND PROCEDURES
            I-6PART
                II. OTHER INFORMATIONITEM
                1.
            LEGAL
                PROCEEDINGS
            II-1ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            II-1ITEM5.
            OTHER
                INFORMATION
            II-3ITEM
                6.
            EXHIBITS
            II-3SIGNATURES
            II-4CERTIFICATIONS
            II-5





*Table
            of Contents*





ITEM
              1.
            FINANCIAL
                STATEMENTS





**BLUEGATE
                CORPORATION****CONSOLIDATED
                BALANCE SHEETS****UNAUDITED****June
                30,**
            
            **December
                31**,**2006**
            
            **2005****ASSETS**
            
            
            
            ****Current
                assets:Cash
                and cash equivalents
            
            $
            21,586
            
            $
            27,791Accounts
                receivable, net
            
            
            306,266
            
            
            365,131Prepaid
                expenses and other
            
            
            17,850
            
            
            46,809Total
                current assets
            
            
            345,702
            
            
            439,731Property
                and equipment, net
            
            
            70,219
            
            
            106,157Goodwill
            
            
            83,202
            
            
            83,202Intangibles,
                net
            
            
            27,868
            
            
            25,912Total
                assets
            
            $
            526,991
            
            $
            655,002**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**Current
                liabilities:Convertible
                notes payable, net of unamortized discount of -0- at June 30, 2006
                and
                $242,316 at December 31, 2005
            
            $
            500,000
            
            $
            257,684Notes
                payable
            
            
            12,800
            
            
            12,800Notes
                payable to related parties
            
            
            482,840
            
            
            25,000Bank
                line of credit payable
            
            
            45,507
            
            
            -Accounts
                payable
            
            
            483,792
            
            
            491,337Accrued
                liabilities
            
            
            137,243
            
            
            174,674Deferred
                revenue
            
            
            388,594
            
            
            404,553Total
                current liabilities
            
            
            2,050,776
            
            
            1,366,048Commitments
                and contingencies
            
            
            -
            
            
            -Stockholders’
                deficit:Series
                A Convertible Non-Redeemable Preferred stock, $.001 par value, 20,000,000
                shares authorized, 0 and 110.242 issued and outstanding at June 30,
                2006
                and December 31, 2005, respectively, $5,000 per share liquidation
                preference ($551,210 aggregate liquidation preference at December
                31,
                2005)
            
            
            -
            
            
            -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, 8,623,930 and
                6,332,376 shares issued and outstanding at June 30, 2006 and December
                31,
                2005, respectively
            
            
            8,624
            
            
            6,332Additional
                paid-in capital
            
            
            12,362,930
            
            
            10,841,189Subscription
                receivable
            
            
            -
            
            
            (15,007
            )Deferred
                compensation
            
            
            -
            
            
            (34,592
            )Accumulated
                deficit
            
            
            (13,895,339
            )
            
            (11,508,968
            )Total
                stockholders’ deficit
            
            
            (1,523,785
            )
            
            (711,046
            )Total
                liabilities and stockholders’ deficit
            
            $
            526,991
            
            $
            655,002




F-1
 *Table
            of Contents*





**BLUEGATE
      CORPORATION**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**THREE
      MONTHS AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005**


**UNAUDITED**





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Service
                revenue
            
            $
            814,846
            
            $
            409,936
            
            $
            1,750,495
            
            $
            875,767Cost
                of services
            
            
            344,151
            
            
            233,720
            
            
            766,891
            
            
            421,731Gross
                margin
            
            
            470,695
            
            
            176,216
            
            
            983,604
            
            
            454,036Selling,
                general and administrative expenses
            
            
            1,630,038
            
            
            898,329
            
            
            2,896,311
            
            
            2,051,726Loss
                from operations
            
            
            (1,159,343
            )
            
            (722,113
            )
            
            (1,912,707
            )
            
            (1,597,690
            )Loss
                on conversion of notes payable to common stock
            
            
            -
            
            
            -
            
            
            -
            
            
            892,882Interest
                expense
            
            
            217,863
            
            
            39,393
            
            
            481,248
            
            
            70,372Other
                income, net
            
            
            (3,369
            )
            
            (1,886
            )
            
            (7,582
            )
            
            (4,884
            )Net
                loss
            
            $
            (1,373,837
            )
            $
            (759,620
            )
            $
            (2,386,373
            )
            $
            (2,556,060
            )Basic
                and diluted net loss per common share:
            
            $
            (0.17
            )
            $
            (0.17
            )
            $
            (0.32
            )
            $
            (0.69
            )Weighted
                average shares outstanding
            
            
            8,226,115
            
            
            4,572,590
            
            
            7,561,039
            
            
            3,710,123




F-2
 *Table
            of Contents*




**BLUEGATE
      CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**SIX
      MONTHS ENDED JUNE 30, 2006 AND 2005**


**UNAUDITED**





**June
                30,**
            
            **June
                30,****2006**
            
            **2005**Cash
                flows from operating activities:Net
                loss
            
            $
            (2,386,373
            )
            $
            (2,556,060
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Accretion
                of debt discount
            
            
            242,316
            
            
            52,734Depreciation
                and amortization
            
            
            42,959
            
            
            42,512Bad
                debt expense
            
            
            -
            
            
            103,710Common
                stock and warrants issued for registration rights
                extension
            
            
            350,743
            
            
            -Common
                stock issued for services
            
            
            84,220
            
            
            491,312Common
                  stock options and warrants issued forservices
            
            
            570,927
            
            
            275,186Common
                stock warrants issued for extension of repayment
            
            
            177,735
            
            
            -Impairment
                of subscription receivable
            
            
            15,007
            
            
            -Loss
                on debt conversion
            
            
            -
            
            
            892,882Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            58,865
            
            
            (19,128
            )Inventory
            
            
            -
            
            
            (46,231
            )Prepaid
                and other current assets
            
            
            (3,041
            )
            
            (8,988
            )Accounts
                payable and accrued expenses
            
            
            (21,029
            )
            
            241,211Deferred
                revenue
            
            
            (15,959
            )
            
            (2,185
            )Net
                cash used in operating activities
            
            
            (883,630
            )
            
            (533,045
            )Cash
                flows from investing activities:Payments
                received on note receivable
            
            
            32,000
            
            
            20,768Purchase
                of shares for long term investment
            
            
            -
            
            
            (30,000
            )Purchase
                of property and equipment
            
            
            (8,978
            )
            
            (29,570
            )Net
                cash provided by (used in) investing activities
            
            
            23,022
            
            
            (38,802
            )Cash
                flows from financing activities:Change
                in bank overdraft
            
            
            35,177
            
            
            (9,620
            )Proceeds
                from notes payable
            
            
            730,330
            
            
            110,000Repayment
                of notes payable
            
            
            (331,611
            )
            
            -Net
                change in bank line of credit
            
            
            45,507
            
            
            -Advances
                on purchases of equity securities
            
            
            -
            
            
            275,000Issuance
                of common stock for cash
            
            
            375,000
            
            
            362,515Net
                cash provided by financing activities
            
            
            854,403
            
            
            737,895Net
                increase (decrease) in cash and cash equivalents
            
            
            (6,205
            )
            
            166,048Cash
                and cash equivalents at beginning of period
            
            
            27,791
            
            
            3,708Cash
                and cash equivalents at end of period
            
            $
            21,586
            
            $
            169,756




F-3
 *Table
            of Contents*




**BLUEGATE
      CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONTINUED)**


**UNAUDITED**





**Six
                Months Ended****June
                30,**
            
            **June
                30,****2006**
            
            **2005**Non
                Cash Transactions:Conversion
                of preferred stock to common stock
            
            $
            1,419
            
            $
            -Issuance
                of common stock and common stock equivalents for conversion of related
                party notes payable
            
            
            -
            
            
            355,018Issuance
                of common stock and common stock equivalents for conversion of accrued
                interest
            
            
            -
            
            
            56,573Issuance
                of common stock and common stock equivalents for conversion of related
                party accounts payable
            
            
            -
            
            
            154,297Nationwide
                settlement:Accounts
                receivable
            
            
            -
            
            
            122,429Accounts
                payable
            
            
            -
            
            
            151,949Notes
                receivable
            
            
            -
            
            
            128,230




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 2005 as
      reported in the Form 10-KSB have been omitted.





STOCK-BASED
      COMPENSATION





Financial
      Accounting Standard No. 123R, "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.





During
      fiscal year 2005 Bluegate applied APB No. 25 in accounting for its stock option
      plans and, accordingly, no compensation cost has been recognized in Bluegate’s
      financial statements for stock options under any of the stock plans which on
      the
      date of grant the exercise price per share was equal to or exceeded the fair
      value per share. However, compensation cost has been recognized for warrants
      and
      options granted to non-employees for services provided. The following table
      illustrates the effect on net loss and net loss per share if Bluegate had
      applied the fair value provisions of FASB Statement No. 123, Accounting for
      Stock-Based Compensation, to stock-based employee compensation during
      2005.





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30, 2005**
            
            **June
                30, 2005**Net
                loss attributable to common shareholders as reported
            
            $
            (759,620
            )
            $
            (2,556,060
            )Stock
                based employee compensation included in reported net loss
            
            
            53,707
            
            
            160,424Total
                stock-based employee compensation expense determined under fair value
                based method for all options
            
            
            (450,818
            )
            
            (1,012,473
            )Pro
                forma net loss
            
            $
            (1,156,731
            )
            $
            (3,408,109
            )Basic
                and diluted loss per shareAs
                reported:Net
                loss
            
            $
            (0.17
            )
            $
            (0.69
            )Pro
                forma:Net
                loss
            
            
            (0.25
            )
            
            (0.92
            )Weighted
                average shares outstanding:
            
            
            4,572,590
            
            
            3,710,123




F-5
 *Table
            of Contents*





RECLASSIFICATIONS





We
      have
      reclassified certain June 30, 2005 amounts to conform to the current year’s
      presentation.





2.
            GOING
                CONCERN CONSIDERATIONS





During 
      the  six months ended  June 30, 2006 and 2005, 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 shareholder’s deficit.





These 
      factors  raise  substantial  doubt  about  Bluegate'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.
            ACQUISITION
                OF TRILLIANT CORPORATION ASSETS





On
      September 15, 2005, Bluegate acquired substantially all of the assets and
      assumed certain ongoing contractual obligations of Trilliant Corporation, a
      company that provides assessment, design, vendor selection, procurement and
      project management for large technology initiatives, particularly in the
      healthcare arena. The acquisition strengthened Bluegate as a competitor in
      the
      technology management industry. The purchase price consisted of $161,033 cash
      and 258,302 shares of Bluegate's common stock valued at $180,811. The asset
      sale
      and purchase agreement provides for additional consideration up to 827,160
      common shares depending on the acquired business' revenue over the next two
      years and royalty payments based on sales over the next two years of certain
      software acquired. The estimated fair values of the assets acquired at September
      15, 2005 are as follows:





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





Additional
      consideration, if any, will be allocated to goodwill upon payment. Goodwill
      will
      be tested periodically for impairment as required by FASB Statement No. 142,
      "Goodwill and other Intangible Assets."





The
      results of this acquisition are included in the consolidated financial
      statements from the date of acquisition. Unaudited proforma operating results
      for Bluegate, assuming the acquisition occurred on January 1, 2005, are as
      follows:








Six
                Months Ended June 30,2006
            
            2005Service
                revenue
            
            $
            1,750,495
            
            $
            1,390,149Net
                loss
            
            
            (2,386,373
            )
            
            (2,609,863
            )Net
                loss per common share
            
            
            (0.32
            )
            
            (0.70
            )





The
      proforma results are not necessarily indicative of what would have occurred
      if
      the acquisition had been in effect for the periods presented. In addition,
      they
      are not intended to be a projection of future results and do not reflect any
      synergies that might be achieved by combining the operations.




F-6
 *Table
            of Contents*





4.
            NOTES
                PAYABLE





During
      the quarter ended June 30, 2006, we borrowed $45,507 on a bank line of credit
      with an interest rate of 10.75%. The line of credit is due on demand and
      unsecured.





During
      the six months ended June 30, 2006, we borrowed $730,330 from related parties
      with interest rates ranging from 7.35% to 29.99% on their underlying credit
      cards. The notes are due on demand and unsecured. During the same period, we
      made payments of $331,611 on related party notes.







5.
            COMMON
                STOCK, OPTIONS AND WARRANTS





During
      the six months ended June 30, 2006, Bluegate completed the following equity
      transactions:





(a)
      In
      January 2006, we issued an option to purchase 546,000 shares of our common
      stock
      at an exercise price of $0.75 per share to an employee. The option had a market
      value of $332,235 on the date of grant, vests through December 2008 and expires
      in January 2011.  We
      expensed $41,529 during the quarters ended March 31, 2006 and June 30, 2006
      related to this option.





(b)
      During February 2006, we issued 200,000 shares of common stock to a consultant
      for services rendered. The common stock had a market value of $104,000 on the
      date of issuance. We expensed $104,000 during the quarter ended March 31, 2006.





(c)
      In
      February 2006, we issued 50,000 shares of common stock for $50,000 proceeds
      from
      the exercise of a warrant.





(d)
      In
      March 2006, we issued 1,418,660 shares of our common stock for conversion of
      110.242 shares of our Series A Convertible Non-Redeemable Preferred stock.
      As a
      result of this transaction, there are no remaining shares of our Series A
      Convertible Non-Redeemable Preferred stock outstanding.





(e)
      In
      February and March 2006, we issued 273,333 shares of common stock, warrants
      for
      273,333 shares of our common stock at an exercise price of $0.75 per share
      and
      warrants for 136,667 shares of our common stock at an exercise price of $1.00
      per share, for $205,000 in connection with a private placement of our
      securities. Bluegate evaluated the freestanding warrants to determine if they
      were within the scope of SFAS 133 and EITF 00-19. Part of this evaluation
      considered the ‘Liquidated Damages’ provision in the ‘Registration Rights
      Agreement’ that covers both the warrants and the common stock. Bluegate
      concluded the freestanding warrants should not be classified as a liability
      and
      therefore are not subject to SFAS 133.





(f)
      On
      March 31, 2006 certain adjustment provisions contained in Bluegate's convertible
      notes payable warrants issued in September 2005 were triggered. Pursuant to
      the
      adjustment provisions, the exercise price of the previously issued warrants
      to
      purchase 666,667 shares of our common stock at $1.00 per share was reduced
      to
      $0.75 per share (See item p below).





(g)
      In
      March 2006 a consultant returned, and Bluegate cancelled, 133,000 shares of
      common stock that was previously issued to the consultant as compensation.
      The
      consultant agreed to forfeit an option to purchase 41,250 shares of our common
      stock at $1.00 per share. The fair value of the stock cancelled was $87,780.
      Bluegate reversed $26,290 of compensation expense related to the option which
      was previously recorded.





(h)
      In
      April 2006 we exercised our option to extend the due date of the aforementioned
      convertible notes (see item f above) payable by 90 days to July 31, 2006. As
      a
      result, we issued warrants to purchase 349,866 shares of our common stock at
      $0.75 per share to the note holders, as required by the note agreement. We
      recorded interest expense of $177,735 in connection with this transaction.
      (See
      item p below).





(i)
      In
      May 2006 we issued 160,000 shares of stock, warrants for 160,000 shares of
      our
      common stock at an exercise price of $0.75 per share and warrants for 80,000
      shares of our common stock at an exercise price of $1.00 per share, for cash
      consideration of $120,000 in connection with a private placement. Bluegate
      evaluated the freestanding warrants to determine if they were within the scope
      of SFAS 133 and EITF 00-19. Part of this evaluation considered the ‘Liquidated
      Damages’ provision in the ‘Registration Rights Agreement’ that covers both the
      warrants and the common stock. Bluegate concluded the freestanding warrants
      should not be classified as a liability and therefore are not subject to SFAS
      133.





(j)
      In
      May 2006, we issued an option to purchase 5,000 shares of our common stock
      at an
      exercise price of $0.75 per share to an employee. The option had a market value
      of $2,540 on the date of grant and expires in May 2011. We expensed
      $2,540 during the quarter ended June 30, 2006 related to this option.





(k)
      In
      May 2006, the employment contract of an employee expired and an option to
      purchase 233,336 shares of our common stock at $1.00 per share was forfeited.
      Bluegate reversed $35,307 of compensation expense related to the option which
      was previously recorded during the quarter ended March 31, 2006.




F-7
 *Table
            of Contents*





(l)
      In
      May and June 2006, we issued 105,883 shares of common stock valued at $68,000
      for consulting services.





(m)
      In
      June 2006, we issued an option to purchase 600,000 shares of our common stock
      at
      an exercise price of $0.75 per share to an employee. The option had a market
      value of $328,759 on the date of grant, vests through June 2008 and expires
      in
      June 2011. We expensed
      $13,698 during the quarter ended June 30, 2006 related to this option.





(n)
      In
      June 2006, we issued warrants to purchase 48,000 shares of our common stock
      at
      an exercise price of $0.75 per share and warrants to purchase 24,000 shares
      of
      our common stock at an exercise price of $1.00 per share to two vendors. The
      warrants had a market value of $43,756 on the date of grant and expire in June
      2011. We expensed
      $43,756 during the quarter ended June 30, 2006 related to these
      warrants.




(o)
      On
      June 30, 2006, we issued 216,667 shares of our common stock, warrants for
      216,667 shares of our common stock at an exercise price of $0.75 per share
      and
      warrants for 108,333 of our common stock at an exercise price of $1.00 per
      share, for consideration of the investors agreement to extend Bluegate’s
      obligations pursuant to the Registration Rights Agreement until November 30,
      2006. The fair value of the stock and warrants issued was $350,743. Bluegate
      evaluated the freestanding warrants to determine if they were within the scope
      of SFAS 133 and EITF 00-19. Part of this evaluation considered the ‘Liquidated
      Damages’ provision in the ‘Registration Rights Agreement’ that covers both the
      warrants and the common stock. Bluegate concluded the freestanding warrants
      should not be classified as a liability and therefore are not subject to SFAS
      133.





(p)
      On
      June 30, 2006, in conjunction with the transaction to extend Bluegate’s
      obligations pursuant to the Registration Rights Agreement(see item o above),
      certain adjustment provisions in Bluegate’s convertible note agreements and
      warrant agreements issued in September 2005 were triggered. Pursuant to the
      adjustment provisions, the exercise price of the previously issued warrants
      to
      purchase 666,667 shares (see item f above) and 349,866 shares (see item h above)
      of our common stock at $0.75 per share was reduced to $0.50 per share.





(q)
      During the six months ended June 2006, Bluegate expensed $531,001 related to
      previously issued stock options that vested during the period.





Bluegate
      used the Black-Scholes option pricing model to value stock options and warrants
      using the following assumptions: proceeds 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.




6.
            SUBSEQUENT
                EVENTS





On
      July
      3, 2006, we received $100,000 cash and issued warrants and a note payable,
      secured by Bluegate’s accounts receivable, inventory and fixed assets. The
      $100,000 note plus $5,000 is due on October 3, 2006. The warrants are to
      purchase 100,000 shares of our common stock at an exercise price of $0.50 per
      share expiring in July 2007.





In
      July
      2006, we exercised our option to extend the due date of the aforementioned
      convertible notes payable by 90 days to October 31, 2006. As a result, we issued
      warrants to purchase 358,265 shares of our common stock at $0.50 per share
      to
      the note holders, as required by the note agreement. We valued the warrants
      using the Black-Scholes option pricing model using the same assumptions that
      we
      used to value stock options. As a result, we recorded interest expense of
      $214,328 in connection with this transaction.





In
      July
      2006, we issued 120,000 shares of stock, warrants for 120,000 shares of our
      common stock at an exercise price of $0.75 per share and warrants for 60,000
      shares of our common stock at an exercise price of $1.00 per share, for cash
      consideration of $60,000 in connection with a private placement of our
      securities.





In
      July
      2006, we issued an option to purchase 550,000 shares of our common stock at
      an
      exercise price of $0.75 per share to an employee. The option has a market value
      of $328,811 on the date of grant and expires in July 2011. We expensed
      $12,178 in July 2006 related to this option.





On
      August
      1, 2006, we issued an option to purchase 1,200,000 shares of our common stock
      at
      an exercise price of $0.60 per share to an employee. The option has a market
      value of $717,682 on the date of grant and expires in August 2011.
      We expensed
      $55,206 in August 2006 related to this option.





On
      August
      1, 2006, we issued an option to purchase 340,000 shares of our common stock
      at
      an exercise price of $0.60 per share to an employee. The option has a market
      value of $203,343 on the date of grant and expires in August 2011.
      We expensed
      $15,642 in August 2006 related to this option.





On
      August
      1, 2006, we issued an option to purchase 170,000 shares of our common stock
      at
      an exercise price of $0.60 per share to an employee. The option has a market
      value of $101,672 on the date of grant and expires in August 2011.
      We expensed
      $7,821 in August 2006 related to this option.




F-8
 *Table
            of Contents*





ITEM
              2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION








FORWARD
      LOOKING STATEMENT





This
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations as of June 30, 2006 and for the six 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 2005.





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 IT consulting, outsourcing, systems integration, applications
      development and managed security solutions for the health care
      industry.





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(TM) - 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.




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 and providing adequate training and technical support 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: connecting the individual
      physician's practice to this secured network. As a result, Bluegate has
      ambitions to provide its Bluegate Medical Grade Network as the beginning
      national "grid" that all vested parties in the HIPAA initiative turn to when
      the
      concern of connecting physicians to the hospital and the insurance companies
      in
      a secured manner is addressed. As a result, Bluegate 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 strategy is 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 benefit 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
      are:





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


-
            Local,
                regional and national Internet service providers, such asMegapath,
                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
                TimeWarner;


-
            DSL
                providers such as Covad.




I-2
 *Table
            of Contents*





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
      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. 123R, "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.





GENERAL





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 16, 2006 (included in our annual report on Form 10-KSB for the
      year
      ended December 31, 2005).





During
      the six months ended June 30, 2006, and the year ended December 31, 2005, 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 six months ended June 30, 2006 and 2005, we experienced negative financial
      results as follows:





Six
                Months Ended June 30,2006
            
            2005Net
                loss
            
            $
            (2,386,373
            )
            $
            (2,556,060
            )Negative
                cash flow from operations
            
            
            (883,630
            )
            
            (533,045
            )Negative
                working capital
            
            
            (1,705,074
            )
            
            (1,114,195
            )Stockholders'
                deficit
            
            
            (1,523,785
            )
            
            (1,023,678
            )





We
      have
      supported current operations by: 1) raising additional operating cash through
      the private sale of our common stock and options, 2) selling convertible notes
      and 3) issuing stock and options as compensation to certain employees and
      vendors in lieu of cash payments. In addition, we are seeing positive revenue
      growth trend, which is also increasingly contributing to reducing our operating
      deficit.





These
      steps have provided us with the cash flows to continue our business plan, and
      the improved operating revenue is resulting in some improvement in our financial
      position. We are taking steps to improve our cash flow situation that include
      raising capital through additional sale of our common and preferred stock and/or
      debt securities.




I-3
 *Table
            of Contents*





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




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




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




Our
      operations are located in Houston, Texas. Our business consists of the sales
      and
      marketing of our HIPAA compliant VPN and HIPAA application software and related
      services.




RESULTS
      OF OPERATIONS




THREE
      MONTHS ENDED JUNE 30, 2006 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2005




During
      the three months ended June 30, 2006, our revenue was $814,846 versus $409,936
      for the three month period ended June 30, 2005. This represents an increase
      of
      $404,910 and is primarily attributable to our acquisition of the assets of
      Trilliant Corp. and our efforts to market BLUEGATE(TM), our core business.




Our
      cost
      of services for the three months ended June 30,2006 was $344,151 compared to
      $233,720 for the three months ended June 30,2005. The increase in cost of
      services of $110,431 is due to higher interconnect fees and costs associated
      with the expansion of our BLUEGATE(TM) services.




Our
      gross
      margin for the three months ended June 30, 2006 was $470,695 compared to
      $176,216 for the three months ended June 30, 2005. Our gross margin as a
      percentage of sales increased to 58% for the three months ended June 30, 2006
      from 43% for the three months ended June 30, 2005 due to an increase in our
      revenue as we expanded our HIPAA business in the second quarter of 2006.




We
      incurred selling, general and administrative expenses (SG&A) of $1,630,038
      for the three months ended June 30, 2006 compared to $898,329 for the three
      months ended June 30, 2005. The increase in SG&A of $731,709 is primarily
      attributable to the expansion of our sales and marketing efforts and recording
      stock option and warrant related expenses as a result of our adoption of SFAS
      No. 123R in 2006.




We
      incurred a net loss of $1,373,837 for the three months ended June 30, 2006
      compared to a net loss of $759,620 for the three months ended June 30, 2005.
      The
      increase of $614,217 is primarily attributable to recording stock option and
      warrant related expenses due to the company’s adoption of SFAS No. 123R, on
      January 1, 2006, the issuance of common stock and warrants to extend the
      company’s obligations pursuant to registration rights and the issuance of
      warrants for the extension of the debt payment relating to the convertibles
      notes payable.




SIX
      MONTHS ENDED JUNE 30, 2006 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005




During
      the six months ended June 30, 2006, our revenue was $1,750,495 versus $875,767
      for the six month period ended June 30, 2005. This represents an increase of
      $874,728 and is primarily attributable to our acquisition of the assets of
      Trilliant Corp. and our efforts to market BLUEGATE(TM), our core business.




Our
      cost
      of services for the six months ended June 30, 2006 was $766,891 compared to
      $421,731 for the six months ended June 30, 2005. The increase in cost of
      services of $345,160 is due to interconnect fees and costs associated with
      the
      expansion of our BLUEGATE(TM) services.




Our
      gross
      margin for the six months ended June 30, 2006 was $983,604 compared to $454,036
      for the six months ended June 30, 2005. Our gross margin as a percentage of
      sales increased to 56% for the six months ended June 30, 2006 from 52% for
      the
      six months ended June 30, 2005 due to an increase in our revenue as we expanded
      our HIPAA business in the second quarter of 2006.




I-4
 *Table
            of Contents*





We
      incurred selling, general and administrative expenses of $2,896,311 for the
      six
      months ended June 30, 2006 compared to $2,051,726 for the six months ended
      June
      30, 2005. The increase in SG&A of $844,585 is primarily attributable to the
      expansion of our sales and marketing efforts and recording stock option and
      warrant related expenses as a result of our adoption of SFAS No. 123R in
      2006.





We
      incurred a net loss of $2,386,373 for the six months ended June 30, 2006
      compared to a net loss of $2,556,060 for the six months ended June 30, 2005,
      or
      an overall decrease of $169,687. After taking into effect a non-cash charge
      to
      income of $892,882 in 2005 upon the conversion of notes payable to common stock,
      Bluegate’s net loss increased by $723,195. The increase is primarily
      attributable to recording stock option and warrant related expenses due to
      the
      company’s adoption of SFAS No. 123R on January 1, 2006, the issuance of common
      stock and warrants to extend the company’s obligations pursuant to registration
      rights and the issuance of warrants for the extension of the debt payment
      relating to the convertibles notes payable.






FORECAST
      OF GROWTH IN OUR HIPAA CUSTOMER BASE





At
      June
      30, 2006, we had 1,062 HIPAA customers. We are forecasting only a marginal
      increase in the number of HIPAA customers through 2006. We have shifted our
      focus towards increasing our outsourced IT services to our existing physician
      customer base. Our goal is to increase the amount of revenue we obtain from
      each
      physician we serve.





We
      have
      also initiated an aggressive effort to expand our Bluegate network beyond
      Houston. Although we have opened up a number of discussions with Hospital groups
      on other markets, we
      have
      no assurances we will be successful in these efforts.






LIQUIDITY
      AND CAPITAL RESOURCES





Operations
      for the six month period ended June 30, 2006 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.





Our
      cash
      on hand at June 30, 2006 was $21,586.





We
      are
      seeking additional capital to fund expected operating costs. We believe that
      future funding may be obtained from public or private offerings of equity
      securities, debt or convertible debt securities or other sources. Stockholders
      should assume that any additional funding will likely be dilutive.





If
      we are
      unable to raise additional funding, we may have to limit our operations to
      an
      extent that we cannot presently determine. The effect of this on our business
      may require the sale of assets, the reduction or curtailment of new customer
      acquisition, reduction in the scope of current operations or the curtailment
      of
      business operations.





Our
      ability to achieve profitability will depend upon our ability to raise
      additional operating capital, the continued growth in demand for connectivity
      services and our ability to execute and deliver high quality, reliable
      connectivity services.





Our
      growth is dependent on attaining profit from our operations and our raising
      additional capital either through the sale of stock or borrowing. There is
      no
      assurance that we will be able to raise any equity financing or sell any of
      our
      products at a profit.





Our
      future capital requirements will depend upon many factors, including the
      following:





-
            The
                cost of operating our VPN


-
            The
                cost of third-party software


-
            The
                cost of sales and marketing


-
            The
                rate at which we expand our
                operations


-
            The
                response of competitors


-
            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 (the "Exchange Act")), our principle
                executive officer and principle financial officer have concluded
                that as
                of the end of the period covered by this quarterly report on Form
                10-QSB
                such disclosure controls and procedures were not effective to ensure
                that
                information required to be disclosed by us in reports that we file
                or
                submit under the Exchange Act is recorded, processed, summarized
                and
                reported within the time periods specified in Securities and Exchange
                Commission rules and forms, because of an adjustment required by
                our
                auditors in the area of equity. Specifically, our independent auditors
                identified deficiencies in our internal controls and disclosure controls
                related to expense recognition on issuances of our stock and stock
                warrants for registration rights agreements extensions. Appropriate
                adjustments and footnote disclosures have been recorded and disclosed
                in
                our Interim Report on Form 10-QSB. We are in the process of improving
                our
                internal controls in an effort to remediate these deficiencies through
                the
                following efforts: employed a full time controller in January 2006
                who is
                a CPA, has public company as well as, operational experience, 2)our
                controller was appointed Bluegate’s chief financial officer effective June
                1, 2006, 3) implementing better controls and procedures over, expense
                recognition and stock option issuances, and 4) improving supervision
                and
                training of our accounting staff. We are continuing our efforts to
                improve
                and strengthen our control processes and procedures to fully remedy
                these
                deficiencies. Our management and directors will continue to work
                with our
                auditors and other outside advisors to ensure that our controls and
                procedures are adequate and effective.





(b)
            Changes
                in internal control over financial reporting. During the quarter
                under
                report, our controller was appointed Bluegate’s Chief Financial Officer
                effective June 1, 2006, we are implementing better controls and procedures
                over debt valuation, expense recognition and stock option issuances,
                and
                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




ITEM
              1.
            LEGAL
                PROCEEDINGS





We
      are a
      party in the following litigation:





Bluegate
      Corporation v. the Navi-Gates Corporation and Robert C. Weslock, Cause No.
      2005-00534; In the 234th Judicial District Court of Harris County, Texas.
      Bluegate filed this lawsuit, claiming breach of contract, deceptive trade
      practices and fraud. In June 2006, the parties in this litigation entered into
      a
      Mutual Settlement and Release Agreement and the matter has been resolved to
      the
      parties’ satisfaction.








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





We
      issued
      unregistered securities in transactions summarized below.





(1)
      In
      May 2006 we issued 160,000 shares of stock, warrants for 160,000 shares of
      our
      common stock at an exercise price of $0.75 per share and warrants for 80,000
      shares of our common stock at an exercise price of $1.00 per share, for cash
      consideration of $120,000 in connection with a private placement. 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. We paid one broker-dealer a sales commission in
      this
      transaction. This transaction did not involve a public offering. The investor
      was knowledgeable about our operations and financial condition. The investor
      was
      an accredited investor as defined in Regulation D and had knowledge and
      experience in financial and business matters that allowed them to evaluate
      the
      merits and risk of receipt of these securities.





(2)
      In
      May 2006 we issued an option to purchase 5,000 shares of our common stock at
      an
      exercise price of $0.75 per share to an employee. The option had a market value
      of $2,540 on the date of grant, vests immediately and expires in May 2011.
      We expensed
      $2,540 during the quarter ended June 30, 2006 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.





(3)
      In
      May and June 2006 we issued 105,883 shares of common stock valued at $68,000
      for
      consulting services. These transactions were 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.





(4)
      In
      June 2006 we issued an option to purchase 600,000 shares of our common stock
      at
      an exercise price of $0.75 per share to an employee. The option had a market
      value of $328,759 on the date of grant, vests through June 2008 and expires
      in
      June 2011. We expensed
      $13,698 during the quarter ended June 30, 2006 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.





(5)
      In
      June 2006 we issued warrants to purchase 24,000 shares of our common  stock
      at
      an exercise price of $0.75 per share and warrants to purchase 12,000 shares
      of
      our common stock at an exercise price of $1.00 per share to a vendor. The
      warrants had a market value of $21,878 on the date of grant and expire in June
      2011. We expensed
      $21,878 during the quarter ended June 30, 2006 related to these
      warrants. These
      transactions were 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.




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(6)
      On
      June 30, 2006 we issued 216,667 shares of our common stock, warrants for 216,667
      shares of our common stock at an exercise price of $0.75 per share and warrants
      for 108,333 of our common stock at an exercise price of $1.00 per share, for
      consideration of the investors agreement to extend Bluegate’s obligations
      pursuant to the Registration Rights until November 30, 2006. We expensed
      $350,743 in connection with this transaction. These transactions were 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.





(7)
      On
      June 30, 2006, in conjunction with the transaction to extend Bluegate’s
      obligations pursuant to the Registration Rights Agreement, certain adjustment
      provisions contained in Bluegate’s convertible notes agreements and warrant
      agreements issued in September 2005 were triggered further. Pursuant to the
      adjustment provisions, the exercise price of the previously issued warrants
      to
      purchase 666,667 shares and 349,866 shares of our common stock at $0.75 per
      share was reduced to $0.50 per share. These transactions were 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.





(8)
      In
      July 2006 we issued 120,000 shares of stock, warrants for 120,000 shares of
      our
      common stock at an exercise price of $0.75 per share and warrants for 60,000
      shares of our common stock at an exercise price of $1.00 per share, for cash
      consideration of $60,000 in connection with a private placement. 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. This transaction did not involve a public offering.
      The investor was knowledgeable about our operations and financial condition.
      The
      investor was an accredited investor as defined in Regulation D and had knowledge
      and experience in financial and business matters that allowed them to evaluate
      the merits and risk of receipt of these securities.





(9)
      In
      July 2006 we issued an option to purchase 550,000 shares of our common stock
      at
      an exercise price of $0.75 per share to an employee. The option had a market
      value of $328,811 on the date of grant and expires in July 2011. We expensed
      $12,178 in July 2006 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.





(10)
      In
      August 2006 we issued an option to purchase 1,200,000 shares of our common
      stock
      at an exercise price of $0.60 per share to an employee. The option had a market
      value of $717,682 on the date of grant and expires in August 2011.
      We expensed
      $55,206 in August 2006 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.





(11)
      In
      August 2006 we issued an option to purchase 340,000 shares of our common stock
      at an exercise price of $0.60 per share to an employee. The option had a market
      value of $203,343 on the date of grant and expires in August 2011.
      We expensed
      $15,642 in August 2006 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.





(12)
      In
      August 2006 we issued an option to purchase 170,000 shares of our common stock
      at an exercise price of $0.60 per share to an employee. The option had a market
      value of $101,672 on the date of grant and expires in August 2011.
      We expensed
      $7,821 in August 2006 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.




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ITEM
              5.
            OTHER
                INFORMATION





(1)
      On
      June 30, 2006 we issued 216,667 shares of our common stock, warrants for 216,667
      shares of our common stock at an exercise price of $0.75 per share and warrants
      for 108,333 of our common stock at an exercise price of $1.00 per share, for
      consideration of the investors agreement to extend Bluegate’s obligations
      pursuant to the Registration Rights Agreement until November 30, 2006. We
      expensed $350,743 in connection with this transaction.





(2)
      On
      June 30, 2006, in conjunction with the transaction to extend the Company’s
      obligations pursuant to the Registration Rights Agreement, certain adjustment
      provisions contained in Bluegate’s convertible agreements and warrant agreements
      issued in September 2005 were triggered further. Pursuant to the adjustment
      provisions, the exercise price of the previously issued warrants to purchase
      666,667 shares and 349,866 shares of our common stock at $0.75 per share was
      reduced to $0.50 per share.





(3)
      On
      July 3, 2006 we issued a warrant to purchase 100,000 shares of our common stock
      at an exercise price of $0.50 per share. The warrant had a market value of
      $54,283 on the date of grant and expires in July 2007. We expensed $54,283
      in
      connection with this warrant transaction.





(4)
      In
      July 2006 we exercised our option to extend the due date of the aforementioned
      convertible notes payable by 90 days to October 31, 2006. As a result, we issued
      warrants to purchase 358,265 shares of our common stock at $0.50 per share
      to
      the note holders, as required by the note agreement. As a result, we recorded
      interest expense of $214,328 in connection with this transaction.





(5)
      In
      July 2006 we issued 120,000 shares of stock, warrants for 120,000 shares of
      our
      common stock at an exercise price of $0.75 per share and warrants for 60,000
      shares of our common stock at an exercise price of $1.00 per share, for cash
      consideration of $60,000 in connection with a private placement.





(6)
      In
      July 2006 we issued an option to purchase 550,000 shares of our common stock
      at
      an exercise price of $0.75 per share to an employee. The option had a market
      value of $328,811 on the date of grant and expires in July 2011. We expensed
      $12,178 in July 2006 related to this option.





(7)
      In
      August 2006 we issued an option to purchase 1,200,000 shares of our common
      stock
      at an exercise price of $0.60 per share to an employee. The option had a market
      value of $717,682 on the date of grant and expires in August 2011.
      We expensed
      $55,206 in August 2006 related to this option.





(8)
      In
      August 2006 we issued an option to purchase 340,000 shares of our common stock
      at an exercise price of $0.60 per share to an employee. The option had a market
      value of $203,343 on the date of grant and expires in August 2011.
      We expensed
      $15,642 in August 2006 related to this option.





(9)
      In
      August 2006 we issued an option to purchase 170,000 shares of our common stock
      at an exercise price of $0.60 per share to an employee. The option had a market
      value of $101,672 on the date of grant and expires in August 2011.
      We expensed
      $7,821 in August 2006 related to this option.








ITEM
              6.
            EXHIBITS





ExhibitNumber
            Name10.1
            Stock
                Option Agreement of Andy Draper10.2
            Stock
                Option Agreement of William E. Koehler10.3
            Stock
                Option Agreement of Larry Walker10.4
            Stock
                Option Agreement of Alex Bitoun31.1
            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




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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 1, 2006
            /s/
            Manfred
                SternbergManfred
                Sternberg,Chief
                Executive OfficerBluegate
                CorporationDate:
                August 1, 2006
            /s/
            Charles
                E. LeiboldCharles
                E. Leibold, CPA,Chief
                Financial Officer






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