Attached files
Exhibit
10.7
FAIRNESS
OPINION
Prepared
in conjunction with
A
Sale & Purchase of Assets by
Bluegate
Corporation
("SELLER")
And
A
Sperco Entity, Trilliant Corporation and SAI Corporation
("PURCHASERS")
November
6, 2009
1
November
6, 2009
Mr.
Charles Leibold
Chief
Financial Officer
Bluegate
Corporation
701 North
Post Oak Road, Suite 600
Houston,
Texas 77024
Dear Mr.
Leibold:
Convergent
Capital Appraisers, LLC (CCA) has been engaged by Bluegate Corporation (Company
or Bluegate or BGAT) to render a Fairness Opinion in regard to the following
described transactions.
Stephen Sperco (through a
Sperco entity controlled by him) will purchase certain assets from Bluegate
Corporation (“BGAT”) with payment made by a combination of cash and the
conversion of debt. The assets to be purchased will be the BGAT Medical Grade
Network (“MGN”) operation that supports clients with field engineers,
consulting, and the sale of product. Trilliant Corporation will purchase certain
assets from BGAT with a cash payment. The assets to be purchased will be the
Trilliant Technology Groups (“TTG”) consulting operation. SAI Corporation
(“SAIC”) will purchase certain assets from BGAT in exchange for a Mutual Release
in Full of certain claims. The assets to be purchased will be the Healthcare
Information Management Systems (“HIMS”) consulting operation. The
remaining Carrier/Circuit business will remain in Bluegate
Corporation.
2
Compliance
Standards - 5150 Fairness Opinions*
While we
are not specifically bound by the pronouncements of the Financial Industry
Regulatory Authority, Inc. (FINRA- formerly the National Association of
Securities Dealers NASD), it is our assessment that since the guidelines have
been endorsed by the United States Securities and Exchange Commission (SEC) as
being consistent with current disclosure regulations, we believe it prudent to
comply with the following disclosures.
*This
rule was introduced with the filing of SR-FINRA-2008-028 which has been approved
by the SEC. This rule became effective on December 15, 2008.
Disclosures
If at the
time a fairness opinion is issued to the board of directors of a company the
member issuing the fairness opinion knows or has reason to know that the
fairness opinion will be provided or described to the company's public
shareholders, the member must disclose in the fairness opinion:
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(1)
if the member has acted as a financial advisor to any party to the
transaction that is the subject of the fairness opinion, and, if
applicable, that it will receive compensation that is contingent upon the
successful completion of the transaction, for rendering the fairness
opinion and/or serving as an
advisor;
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(2)
if the member will receive any other significant payment or compensation
contingent upon the successful completion of the
transaction;
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(3)
any material relationships that existed during the past two years or that
are mutually understood to be contemplated in which any compensation was
received or is intended to be received as a result of the relationship
between the member and any party to the transaction that is the subject of
the fairness opinion;
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(4)
if any information that formed a substantial basis for the fairness
opinion that was supplied to the member by the company requesting the
opinion concerning the companies that are parties to the transaction has
been independently verified by the member, and if so, a description of the
information or categories of information that were
verified;
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(5)
whether or not the fairness opinion was approved or issued by a fairness
committee; and
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(6)
whether or not the fairness opinion expresses an opinion about the
fairness of the amount or nature of the compensation to any of the
company's officers, directors or employees, or class of such persons,
relative to the compensation to the public shareholders of the
company.
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Disclosure
Responses
CCA has
not had and does not anticipate any involvement in the foregoing transaction
except to the extent of rendering this opinion regarding the fairness of the
transaction.
CCA’s
compensation in this matter is being paid by Bluegate Corporation and is based
upon hourly rates and a total fee estimate that has been contractually
agreed.
The only
relationship with Bluegate and CCA is through the predecessor firm of McClure,
Schumacher & Associates, LLP which provided valuation services relative to
accounting issues and FASB 141 in conjunction with the purchase of Trilliant in
2006 and 2007.
We have
not attempted to verify independently public or private information considered
in our valuation.
We have
expressed no opinions regarding the compensation of any parties to this
transaction.
Conclusion
Based
upon the criteria outlined in this report, and based upon our research and
analysis, it is our opinion that: (i) the overall terms and conditions of the
Purchase Transaction are fair from a financial point of view and (ii) pursuant
to the Transaction Terms, the shareholders of Bluegate are receiving no less
than adequate consideration.
Company
Overview
The
following business description is taken from the Company’s second quarter 10Q,
filed in July 2009. The Company has been trying to establish itself
as a leader in the healthcare information technology business. The
efforts have not been successful as indicated by the subsequent financial
information that shows continuous losses and the auditor’s opinion regarding
questions of “going concern.”
OUR
BUSINESS
Bluegate
provides the nation's only Medical Grade Network that facilitates physician and
clinical integration between hospitals and physicians in a secure private
environment. As a leader in providing the Healthcare industry outsourced
Information Technology (IT) solutions and remote IT management services,
Bluegate provides hospitals and physicians with a single source solution for all
of their clinical integration and IT needs. Additionally Bluegate provides IT
and telecommunications consulting through its professional services
organization.
CONSULTING
PRACTICE
Healthcare
institutions have very unique requirements not found in a typical commercial
environment. Our Healthcare consulting practice works with medical facilities
and systems on evaluation, procurement and implementation of healthcare related
voice, data, video, infrastructure and applications for the Healthcare
environment with a particular emphasis on the deployment of Electronic Medical
Record applications. Our IT/Telecommunications consulting practice works in
various industry verticals providing evaluation, procurement and implementation
of IT/Telecommunications solutions for our clients. Our Applications consulting
practice provides specific applications development, enhancement, coding, and
integration work for various industry verticals.
OUTSOURCING
Our
outsourcing offering includes help desk support and break-fix operations as well
as acquisition and special financing of equipment and services. It also can
include provisions for technology refresh, change management, and level of
service agreements. Our target market for such services consists of
private-practice physicians whose office staffs typically lack the in-house
technical expertise to support mission-critical computer systems and associated
hardware. In many cases, these private-practice physicians are affiliated with
our larger medical facility clients, creating a logical foundation for Bluegate
to establish and maintain long-term business relationships.
SYSTEMS
INTEGRATION AND MANAGED SECURITY SOLUTIONS
Our
systems integration and managed security group enables secure, HIPAA-compliant
data communication between hospitals, medical facilities and physician practices
from all locations via the services of our Bluegate Medical Grade Network
ultimately enhancing patient care. We also provide affordable access to
compatible medical-focused content and applications over a secure IT
infrastructure to improve practice efficiency and service. We extend IT Best
Practices to the edge of the healthcare network ensuring every access point for
the physician and healthcare location is as secure as the hospital
itself.
3
MARKET
OPPORTUNITY IN HEALTHCARE
Electronic
data communication networks have vast potential for enhancing the quality of
patient care, mitigating the soaring costs of healthcare, and protecting patient
privacy. To harness this potential, the current administration, Congress, and
administrative agencies are advocating that all physicians get connected to the
proposed national health information network (NHIN) system. A NHIN is expected
to enable physicians to write electronic prescriptions (eRx) and securely share
patient electronic health records (EHR), including medical images, with other
healthcare providers at hospitals, clinics, and individual physician
offices.
In
order to access and use the NHIN, individual physicians must have the
appropriate IT environment at their offices, and the hospitals where they admit
patients. Further, the hospitals' credentialed physicians must be on a common
HIPAA compliant network. Once the hospital has installed the necessary secure
electronic connectivity behind their firewall, the "last mile" of connectivity,
the figurative distance from the telecommunication provider's switch to an end
user (i.e. the physician), still presents a major challenge. In addition to
being HIPAA-compliant, the networks also need to be interoperable, which
requires assessing and augmenting physicians' existing IT equipment and
resources. Adequate training and technical support is necessary to ensure the
highest possible network availability and security and the ability to move and
manage information back and forth.
The
Administrative Simplification provisions of Title II of HIPAA require the United
States Department of Health and Human Services to establish national standards
for electronic healthcare transactions and national identifiers for providers,
health plans, and employers. It also addresses the security and privacy of
health data. Adopting these standards will improve the efficiency and
effectiveness of the nation's Healthcare system by encouraging the widespread
use of electronic data interchange in Healthcare. As the result of increasing
pressure for healthcare providers to adopt electronic health records and the
favorable healthcare IT environment created by the Stark Law exceptions there is
rapidly increasing demand for Bluegate's networks, technologies, remote
management, and professional IT services.
BLUEGATE
STRATEGY
Healthcare
Our
current short term strategies are to: (1) increase our market penetration of the
Houston hospital, centralized Healthcare, and physician markets; (2) commence
deployment of services in other Texas cities; and, (3) commence deployment of
services in other cities in the U.S. Our long term strategy is fivefold: (1)
fill as much of the national HIPAA-compliant secured communications void that
exists between the physician and the hospital as we can; (2) sell our services
to the physicians that utilize our Medical Grade Network enabling
them to choose Bluegate as their electronic health solutions firm and
as the IT outsource firm of choice for all of their technology needs; (3) to be
"THE" IT solutions resource to medical institutions, Healthcare facilities,
regional health information organizations (RHIOs), and centralized Healthcare
organizations (HCOs) for all their IT needs; (4) partner with a wide array of
third party providers of software, managed systems, pharmacy benefits, and many
other applications that must run on electronic networks and be installed in
hospitals, HCOs and medical practices; and (5) become the premier "boutique"
consulting practice supporting the deployment of Electronic Medical Record
systems and services.
Professional
Services
In
addition to the Professional Services initiatives in Healthcare, Bluegate
intends to continue to grow in the following areas through its Trilliant
Technology Group organization: (1) Further establish its reputation as one of
the top Telecommunications consulting organizations in the U.S.; and (2) expand
its IT Infrastructure consulting base.
GOING
CONCERN ISSUES
We
remain dependent on outside sources of funding for continuation of our
operations. Our independent registered public accounting firm included a going
concern qualification in their report dated April 9, 2009 (included in our
annual report on Form 10-K for the year ended December 31, 2008), which raises
substantial doubt about our ability to continue as a going concern.
During
the six months ended June 30, 2009 and the year ended December 31, 2008, we have
been unable to generate cash flows sufficient to support our operations and have
been dependent on debt and equity raised from qualified individual investors and
loans from a related party.
During
the six months ended June 30, 2009 and 2008, we experienced negative financial
results as follows:
Six
Months Ended June 30,
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2009
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2008
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||||||
Net
loss
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$ | (41,102 | ) | $ | (1,424,496 | ) | ||
Negative
cash flow from operations
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$ | (127,269 | ) | $ | (208,669 | ) | ||
Negative
working capital
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$ | (1,505,020 | ) | $ | (1,243,245 | ) | ||
Stockholders'
deficit
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$ | (1,477,367 | ) | $ | (1,189,289 | ) |
These
factors raise substantial doubt about our ability to continue as a going
concern. The financial statements contained herein do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should we be unable to continue in existence. Our ability to continue as a going
concern is dependent upon our ability to generate sufficient cash flows to meet
our obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitable operations. However, there is no
assurance that profitable operations or sufficient cash flows will occur in the
future.
4
We
have supported the above operations by: (1) loans from a related party, (2)
raising additional operating cash through the private sale of our preferred and
common stock, (3) selling convertible debt and common stock to certain key
stockholders and (4) issuing stock and options as compensation to certain
employees and vendors in lieu of cash payments.
These
steps have provided us with the cash flows to continue our business plan, but
have not resulted in significant improvement in our financial position. We are
considering alternatives to address our cash flow situation that include: (1)
raising capital through additional sale of our common stock and/or debt
Securities and (2) reducing cash operating expenses to levels that are in line
with current revenues.
These
alternatives could result in substantial dilution of existing stockholders.
There can be no assurance that our current financial position can be improved,
that we can raise additional working capital or that we can achieve positive
cash flows from operations. Our long-term viability as a going concern is
dependent upon the following:
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Our ability to locate sources of debt or equity funding to meet current
commitments and near-term future requirements.
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Our ability to achieve profitability and ultimately generate sufficient cash
flow from operations to sustain our continuing operations.
Updated
Financial Analysis
In
preparing this report, we requested that Management through Mr. Charles Leibold
prepare an updated assessment of the financial picture of the Company as of the
middle of October 2009. The response is as follows:
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Bluegate
Corporation is a public company traded on the OTCBB with 26 million shares
outstanding (50% of the outstanding shares are owned by three directors
who have differences among
themselves).
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·
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Bluegate
has had negative cash flow problems for several years and has never
received a clean opinion from the external auditors which have
consistently cited “going concern”
issues.
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·
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Revenue is decreasing as two
lines of business Trilliant Techology Group (TTG) and Healthcare
Information Management Systems (HIMS) have not generated any substantial
new business over the past year and will go dormant by end of November
2009. (2009 first half of year had
Revenue of ~$2M with P/L at around break-even, 2009 Q3 will have Revenue
~$760K with a loss from operations of ~$60K, and Forecast for 2009 Q4 is
Revenue ~$460K with a loss from operations of
~$300K)
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·
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Current
liabilities (there is no long term debt) of approximately $1,900,000
exceed current assets of approximately $300,000. Of the
$1,900,000 of liabilities, approximately $1,500,000 is owed to related
parties - Single secured creditor for $1,300,000 with UCC filing on all of
the Company’s assets and stock (from entity controlled by CEO/Director)
and approximately $90,000 from two Directors who were formerly
officers.
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·
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Operation
will not have cash to sustain another 30-45
days
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Items
of Intangible Value within Bluegate – Not Included in the Sale
Public
filings indicate that the Company has a negative net worth based on tangible
assets. The following analysis examines the items of value that may
not be reported on the financial statements at fair value as defined
below.
The
Statement of Financial Accounting Standards No. 157(FAS 157)
“Fair
Value” is defined in FAS 157 as: the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Because that exit price
objective applies for all assets and liabilities measured at fair value, any
fair value measurement requires that the reporting entity
determine:
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·
The particular asset or liability that is the subject of the measurement
(consistent with its unit of
account);
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·
For an asset, the valuation premise appropriate for the measurement
(consistent with its highest and best
use);
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·
The principal (or most advantageous) market for the asset or liability
(for an asset, consistent with its highest and best
use);
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·
The valuation technique(s) appropriate for the measurement, considering
the availability of data with which to develop inputs that represent the
assumptions that market participants would use in pricing the asset or
liability and the level in the fair value hierarchy within which the
inputs fall.
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At the
end of the business description filed with the SEC (excerpted previously), there
is a note regarding networking services. This operation appears to be
the only one that has on-going value because there is an expectation that it
will generate a consistent flow of cash flow in excess of the cost of
services. It provides internet connectivity to corporate clients on a
subscription basis; essentially operating as a broker. It has several
customers and expects to generate about $350,000 in revenue and net about
$180,000 in gross margin or profit. In addition, whenever there are
technical issues or an opportunity to provide IT support, those tasks have
traditionally been referred to other operations within the Company or to outside
contractors. This operation is NOT included in the contemplated
transactions and it is to remain with Bluegate Corporation.
5
Terms
of the Deal
A Sperco
entity is an entity owned by Mr. Stephen Sperco who is also the largest
shareholder of Bluegate Corporation (BGAT) holding 4.5 million out of a total of
26 million shares outstanding. The MGN tangible and intangible assets
purchased from BGAT will be moved into a Sperco entity and the HIMS tangible
assets purchased from BGAT will be moved into SAI Corporation (“SAIC”) which an
entity is owned by Stephen Sperco.
Sperco
entity’s purchase price for the MGN assets will consist of $100,000 cash and
$100,000 in forgiveness of debt, plus an adjustment on a dollar for dollar basis
for any working capital. SAIC’s purchase price for the HIMS assets
will consist of a Mutual Release in Full of certain claims. The only tangible
assets to be transferred will be about $40,000 worth of furniture, fixtures and
electronic equipment that are part of the MGN and HIMS operations.
The
intangible assets include the following:
1.
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Medical
Grade Network
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a.
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a
registered mark – “Medical Grade
Network”
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b.
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a
workforce of about 11 people
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c.
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approved
vendor status for the following:
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MHHNP
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Memorial
Hermann Health Ntwrk Prov-9401
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Northwestern
Memorial Hospital
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Bone
and Joint Clinic of Houston
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Renaissance
HealthCare Systems
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Global
Imaging
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Memorial
Hermann Health Sys-Radiology
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Malcolm
Bremer, MD
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Houston
Digestive Disease Consultants
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Southwest
Nephrology Associates, LLP
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Advanced
Orthopedics & Sports Medicine
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Cindy
Ivanhoe, MD, PA
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Diabetes
Centers of America
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Northwest
Oral Maxillofacial Surgery
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G.I.
Specialists of Houston, LLP
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Women's
Healthcare of Houston
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Memorial
MRI & Diagnostic
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Neurology,
Headache & Pain
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Houston
Allergy & Asthma Associates
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Houston
Fertility Institute
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Urology
Associates
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Memorial
Hermann Home Health
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Pulmonary
Critical Care & Sleep Medicine
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Cardiology
Associates of Houston
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Texan
Imaging Centers (formerly Okomed)
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Center
for Pain Recovery, PA
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Gateway
To Care
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Dynamic
Orthotics and Prosthetics
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Leachman
Cardiology Associates, PA
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US
Imaging
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2.
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Healthcare
Information Management Systems
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Since the
HIMS operation has no on-going business it will go dormant by the end of
November 2009, and it is our assessment that without on-going operations this
operation has no intangible fair value.
3.
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Trilliant
Corporation’s (“Trilliant”) (a company owned by William Koehler, former
Director/Corporate Officer of BGAT) purchase price for Trilliant
Technology Group, Inc’s. (“TTG”) assets of $5,000 cash and will
include:
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a.
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the
Trilliant corporate name
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b.
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future
revenues of about $20,000 (residual work on two ending contracts – which
will require hiring contract labor which is expected to cost as much as
the revenue)
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In
additional to the tangible and intangible assets, it is important to note the
following circumstances and details regarding the transaction.
1.
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Lease
and Labor
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a.
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BGAT
is obligated on a building lease for 7,290 square feet that runs until
2013 and costs about $9,000 per
month.
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b.
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BGAT
requires only five or six people to operate its carrier
business
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c.
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The
new Sperco entity will require less than 2,000 square feet for all its
operations post transaction. This would equate to about 27% of
the space or about $2,500 per
month.
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d.
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The
new Sperco entity has agreed to supply BGAT with accounting and
administrative staff, as well as technical support for the carrier
business, at no charge in exchange for free
rent.
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e.
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BGAT
intends to sublease as much of the space as possible as soon as
possible.
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f.
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Occupancy
by the new Sperco entity will defer to BGAT’s needs and
opportunities.
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2.
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Carrier
or Connectivity Operation
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a.
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This
operation is staying with BGAT
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b.
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This
is the only operation of BGAT that has been adequately
profitable.
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c.
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The
new Sperco entity is acquiring the Medical Grade Network operation which
provides maintenance support to BGAT’s Carrier customers. As
part of the transaction, Sperco agrees to continue providing that
support.
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6
3.
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Medical
Grade Network (MGN) Operation – Fair Value
Assessment
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a.
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Revenues
have been declining over the last three years as indicated by the
following table. They appear to have stabilized in 2009 at
around $100,000 per month. The increase in revenues in quarter
3 of 2009 is attributed to several larger dollar projects that are not
expected to recur at the historic
levels.
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b.
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For
the nine months ended September 2009, this entity generated slightly more
than $900,000 in revenues and produced a gross margin (profit after direct
costs) of $130,000 or about 14%. However, after including
direct labors costs (reported as compensation) of $150,000, the operation
lost $20,000.
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c.
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It
must be noted that BGAT’s corporate overhead expense to maintain this
business operation far exceeds an industry norm of 10%, which accounts in
part for continuing ongoing losses.
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d.
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It
is our assessment that while “Medical Grade Network” has been registered
as a proprietary service mark, it does not appear (based on the trend of
revenues and with no pending contracts) to have developed independent
commercial recognition. What value does exist is subsumed
within the forecast cash flows as previously
analyzed.
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4.
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Healthcare
Information Management Systems (“HIMS”) Operation – Fair Value
Assessment
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a.
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Revenues
have been steadily declining during the nine months ended September 2009
and the remaining two contracts will end during November
2009.
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b.
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Since
the HIMS operation has no on-going business it will go dormant by the end
of November 2009, and it is our assessment that without on-going
operations this operation has no intangible fair
value.
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5.
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Trilliant
– Fair Value Assessment
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a.
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This
entity has no work force as of the end of September 2009 because of a lack
of on-going projects.
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b.
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The
remaining $20,000 in contract revenues will be earned through the use of
outside contractors (former Trilliant employees). The
expectation is that the additional cost of using outside contractors
rather than employees will consume any profit
potential.
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c.
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The
Trilliant name has not been established as a brand although it may be
recognized among previous
customers.
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d.
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Given
there are no pending contracts and no pending bids, the value of the
Trilliant name is considered to be minimal at
best.
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Motivation
for the Transaction
BGAT has
not been profitable since inception and the business model has proven to be
unsuccessful. According to Yahoo Finance, the Company has not
attracted any mutual fund or institutional investors. About 13.0
million of the 26 million shares outstanding – about ½ are held by three
individuals and one company. The price of a share has declined from
dollars to pennies over the last eight years and volume is
negligible.
To
resurrect the various operations will require expenditures for marketing and
business development. Given the poor stock performance, it is
unlikely that funds could be raised through a stock offering. The
cash flow statement at right shows that over the past two calendar years,
approximately $6.25 million ($4.85 mil + $1.40 mil) has been raised through the
issuance of stock, options and warrants to fund operating losses which total
approximately $6.9 million over the two years ($1.8 mil + $5.1
mil).
All of
the Company’s assets are pledged against more than $1 million in debt, so it is
unlikely that loans could be secured from traditional lending
sources.
It is our
assessment that BGAT has approached a financial impasse that has required
drastic measures if bankruptcy is to be avoided.
7
Financial
tension within the organization has been caused by reduced compensation and
exchanging paychecks for stock as well as major internal
restructuring. This has lead to discord among the current and former
Directors which has the potential to escalate to legal action. If
lawsuits are brought into this already dire financial situation, the cost and
time delays will undoubtedly destroy what little value is left and bankruptcy
will most surely be the inevitable conclusion to BGAT’s existence.
The
proposed strategy is to minimize the loss and avoid
bankruptcy. Management believes that first and foremost, the
potential litigation must go away if progress is to be made. To that
end, it is our understanding that about $90,000 of the $100,000 cash purchase
price paid to BGAT for the MGN assets will be used to repay loans from Mr.
Sternberg and Mr. Koehler (two former Directors/employees/corporate
officers). In exchange, they will provide full release and waivers of
all claims.
Common
Shareholder Dilution
As
indicated by the balance sheet at right, even with an infusion of $100,000 and
the forgiveness of $100,000 of debt, shareholders’ equity will still be
negative. We see from the previous financial statements that the
Company has amassed large losses in the last two years and funded those losses
with dilutive shares. Approximately $1.4 million of cash was raised
while $4.8 million of shares / options / warrants were issued to cover
expenses.
While the
rate of loss has decreased in the last year, there is every expectation that
losses will continue if operations are allowed to continue. To cover
those losses, more and more shares will likely be issued as there is no
collateral for loans.
Continuing
to operate in this fashion will be detrimental to the common shareholders as
their ownership value continues to be diluted.
Without
the Sperco entity purchase, the common shareholders have little or no hope of
realizing any return on their investment.
8
Purchase
Prices Relative to Fair Value and Fairness
Given the
dire financial condition of BGAT, it is unrealistic to suggest that MGN be
placed with a business broker to sell because that would likely require between
six months and a year to locate a buyer and close the
transaction. Moreover, given the revenue trends, and a lack of future
contracts, it is uncertain whether a buyer could be found, particularly in a
down economy with tight credit.
Sperco
(through entities controlled by him) will be contributing the following
values
·
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Cash
- $100,000
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·
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Forgiveness
of Debt $100,000
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·
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Accounting
and administrative services and technical support for the carrier business
as needed in exchange for short term free
rent.
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The
determination of fairness is a measurement of relative values. Does
one party to the transaction benefit disproportionately and to the detriment of
another party. In this case, the question is whether the Sperco
entity, SAIC and Trilliant will benefit to the detriment of the common
shareholders.
Our
analysis of the fair value of the MGN assets included in this transaction
indicates that if anything, the price of $200,000 is likely a high price. The
total tangible collateral in this transaction is something less than $40,000
which means a loan value in the $30,000 range or less. TTG has no
on-going operations while MGN and HIMS’s operations have been trending
downward.
We know
that these three operations are insufficient to support BGAT’s overhead and if
they are not sold in short order, they will likely cease to exist.
Without
these sales, BGAT will continue to be in default on its loans and given the
state of financial resources, will be forced to file for bankruptcy
protection. Between legal and trustee fees, what few resources are
left will be consumed and the common shareholders will receive
nothing.
Conclusion
Based
upon the foregoing evidence and analysis, it is our opinion that this
transaction is fair from a financial point of view as it provides the common
shareholders with more value than any other likely
scenario. Moreover, the prices being paid to BGAT is assessed as
meeting or exceeding what we have determined to be a fair value for the assets
to be sold to the Sperco entity, SAIC and Trilliant.
Certification
In
rendering our opinion, we have relied without independent verification upon the
accuracy and completeness of the financial and other information provided by
Bluegate Corporation and their agents.
We have
assumed such information to be correct and complete in all material
aspects.
We have
not attempted to independently verify public or private information considered
in our valuation.
We have
held discussions with Management regarding the condition and outlook for its
operations, and have made such other investigations and analyses, as we have
deemed necessary.
We have
assumed that there has been no material change in Bluegate Corporation’s
financial condition, results of operations, business or prospects since the date
of the last financial statements unless otherwise noted.
We
believe that the analysis of management’s anticipated performance and resulting
lack of cash flow is a reasonable estimation, based upon past performance and
based on the information available to us at this time. In addition,
Bluegate Corporation’s management has represented that there are no pending
contracts or work in progress that have not been disclosed.
The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to the particular
circumstances. Therefore, such an opinion is not readily susceptible
to the partial analysis or summary description. Furthermore, in
arriving at our opinion, we did not attribute any particular weight to any
specific analysis or factor. Rather, we have made qualitative
judgments as to the significance and relevance of each.
Accordingly,
Convergent Capital Appraisers believes that our analysis must be considered as a
whole.
In our
analyses, we made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Bluegate Corporation. Any estimates contained
in these analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than as set forth therein.
Convergent
Capital Appraisers or through a predecessor firm McClure, Schumacher and
Associates, LLP have previously performed independent valuations of Bluegate
Corporation or related entities.
Neither
Convergent Capital Appraisers nor the individuals involved with this analysis
have any present or contemplated future interest in the Plan or Bluegate
Corporation or any other interest that might tend to prevent making a fair and
unbiased appraisal.
These
conclusions are based upon methodologies and financial fairness considerations
that we deem appropriate. In accordance with recognized professional
ethics, our fees for this service are not contingent upon the opinions expressed
herein.
This
Opinion is furnished solely for the benefit of Management and the Board of
Directors and may not be relied upon by any other person or for any other
purpose without our express, prior, written consent.
This
Opinion is delivered subject to the conditions, scope of the engagement,
limitations and understandings set forth in this Opinion and our engagement
letter.
9
Convergent
Capital Appraisers shall not be subjected to any personal liability whatsoever
to any person, or on behalf of you or your affiliates. Convergent
Capital Appraisers has been retained on behalf of and has delivered this Opinion
solely to the Management and the Board of Directors.
Notwithstanding
that, Convergent Capital Appraisers’ fees and expenses are being paid by
Bluegate Corporation and certain covenants and representations have been made by
Bluegate Corporation.
Sincerely,
By: /s/ Jeffrey A. Schumacher
Jeffrey
A. Schumacher
10
Interviews
Multiple
teleconferences were held with Mr. Charles Leibold over the period of October 21
through November 6, 2009. The report has been submitted in draft form
to the Board of Directors for review and comment.
Upon
receiving the Board’s comments and suggestions, the report was finalized and
signature affixed.
Bibliography
·
|
Bluegate
Corporation SEC filing 10Q for the quarters ended 2005 –
2008
|
·
|
Internally
prepared financial statements and supporting as well as specially prepared
related schedules for the nine months ended September
2009
|
·
|
Synopsis
of the purchase and sale contract between the Sperco entity and Bluegate
Corporation
|
11
Curriculum
Vitae
Jeffrey
A. Schumacher, CPA, ABV, ASA
EDUCATION &
CERTIFICATIONS
Certified
Public Accountant (CPA) State of Texas
Accredited
in Business Valuation (ABV)
American Institute of Certified Public
Accountants
Accredited
Senior Appraiser / Business Valuation (ASA)
American Society of
Appraisers
B.B.A. (1976)
Finance Major Valparaiso University
PROFESSIONAL
AFFILIATIONS
American
Institute of Certified Public Accountants
American
Society of Appraisers – Accredited Senior Member
ASA
Houston Chapter Treasurer 2003-2004
ASA
Houston Chapter President 2004-2005
PROFESSIONAL
EXPERIENCE
2007 -
Present FOUNDER
and MANAGING MEMBER
Convergent Capital Appraisers
LLC
Houston, Texas
|
Business
valuation, forensic analysis, special issue damages, business interruption
claims, interim management, litigation support, family law issues,
valuation and consulting in mergers and acquisitions, partnership
dissolutions, dissenting stockholder disputes, ESOP appraisals,
partnership disputes, insurance fraud, patent infringement and estate and
gift taxation issues. Jeff was a pioneer in the design of
business valuation software beginning in the early
1980s.
|
1996 -
2007 FOUNDER
and PARTNER
McClure, Schumacher & Associates
L.L.P.
Houston, Texas
|
Business
appraisal, litigation support, financial consulting and mergers and
acquisitions
|
1990 -
1996 FOUNDER
and PARTNER
Smith & Schumacher
Houston, Texas
|
Business
appraisal, litigation support, financial consulting and mergers and
acquisitions
|
1983 -
1990 ANALYST
|
Served
as a contract financial analyst for several valuation firms in Houston and
Dallas, Texas. These firms included Certified Business Brokers,
Abraham & Associates, Highview Services, Aden-Smith, and American
Business Group.
|
12
SPEAKING
ENGAGEMENTS
|
Texas Society of
Certified Public Accountants
|
|
1995,
1996, 1997 Asset Protection through Family Limited
Partnerships
|
|
1994
Litigation Support Conference – Commercial vs. Personal
Goodwill
|
|
1997
Litigation Support Conference - Discounts – What’s
Fair
|
|
1997
Galveston Family CPE Conference - Basics of Business
Valuation
|
|
1998
Galveston Family CPE Conference - Use and Abuse of
Discounts
|
|
1999
South Texas School of Law – Litigation Support Conference –Daubert
Discussion Panelist
|
|
2000
Advanced Family Law Conference – Internet Research &
Sites
|
|
2000
South Texas School of Law – Litigation Support Conference – Damage Models
Discussion Panelist
|
|
AWSPA-ASWA 54th Annual
Conference
|
|
1994 Basic
Business Valuation Techniques and
Issues
|
|
Houston Bar
Association, Family Law
Section
|
|
1995
Appraising the Appraiser: Family Law
Valuations
|
|
2003
Section 1041 and Marital Property
Divisions
|
|
American Society of
Appraisers
|
|
1998
Daubert & Robinson
|
|
Northeast Harris
County Bar Association
|
|
2000
Equitable Interest
|
|
University of
Houston
|
|
2002
Business Valuation - Discounts
|
|
2003
Business Valuation - Discounts
|
|
2004
Business Valuation – Discounts
|
|
Financial Consulting
Group
|
|
2004
A multiple Regression Model for Predicting
Discounts
|
|
Materials Marketing
Associates, Inc.
|
|
2008
Annual Meeting, Miami, FL – Business Valuation and Exit
Strategies
|
PUBLICATIONS
Houston Business Journal
July 16-22, 1999
So How Much Is My Closely Held Business
Worth?
Houston Business Journal May
16-22, 2003
Small Business Owners May Face Big
Challenges in Divorce Court
Valuation Strategies
September/October 2005
Estimating Minority Interest
Discounts
13