WorldGate Winding Down

WorldGate Communications Inc. (Nasdaq: WGAT), a company that cut its teeth on interactive television (iTV) before getting into the videophone business, has shut down operations as it tries to resolve a payment dispute with its largest customer.

WorldGate, maker of the Ojobroadband videophone, detailed its precarious financial situation in an 8-K document filed Tuesday (February 5).

The company noted it's in dispute with its largest customer over payment of "significant monies, which the Company believes are owed to it."

As a result, WorldGate has opted to shut down its operations "as a first step to winding down its business, which will occur if the Company is not able to secure payment of the monies believed to be owed and/or new financing."

WorldGate, founded in 1995, said it is also pursuing legal action against the customer in question.

While WorldGate didn't identify the customer or specify the amount it believes is owed, the customer in question is Snap!VRS, which was identified as a significant customer in WorldGate's third quarter financials.

Snap!VRS facilitates communications for the deaf and hard-of-hearing using Ojo phones and qualified sign language interpreters.

WorldGate reported shipping more than 3,000 Ojo units to Snap!VRS customers during the third quarter of 2007.

In an open customer letter from Snap!VRS CEO Richard Schatzberg published on its Website's home page Wednesday, the company confirmed it is the customer WorldGate referred to in the 8-K filing.

“While WorldGate would like to direct the blame for its present financial troubles on us, the blame does not reside with Snap!VRS, and it is misleading for WorldGate to suggest so,” Schatzberg wrote. “In actuality, we are current on all payments and do not owe WorldGate any money.”

He added that WorldGate has rejected offers by Snap!VRS to resolve the disagreement through binding arbitration and to provide the necessary funding to ensure WorldGate’s continued operation. “We have recently extended another financing offer to help WorldGate through its financial troubles that would include restoring the Ojo network,” Schatzberg said, noting that customers may use some alternative videophone models, including one from D-Link Systems Inc. .

WorldGate officials did not return multiple calls seeking comment.

A glance at WorldGate's third quarter numbers show that the company was running short on funds, reporting having only $1.6 million in cash as of September 30, 2007. WorldGate posted third quarter revenues of $1.5 million, up 59 percent from the year-earlier period, and a net loss of $2.7 million, narrowed from a loss of $3.6 million.

Before it entered the videophone business in 2003, WorldGate was on the front edge of early cable interactive television, centering much of its strategy on a system that enabled entry-level, "thin-client" set-tops to access the Web. It was also once tied to TVGateway LLC, an interactive program guide (IPG) consortium formed in 2000 with Comcast Corp. (Nasdaq: CMCSA, CMCSK), Cox Communications Inc. , Charter Communications Inc. , and Adelphia Communications. WorldGate sold its iTV assets to TVGateway in October 2003 for $2.5 million and applied the proceeds toward its videophone project.

WorldGate's videophone future appeared to brighten in May 2004, when Motorola Inc. (NYSE: MOT) signed on as the exclusive distribution and marketing partner for the Ojo.

Motorola's early support for the product was evident at the 2005 Consumer Electronics Show, where it debuted and demonstrated the device alongside larger-than-life versions of the Ojo. Motorola also secured some Ojo product placements/cameos for Ojo on "24," the Fox hit TV show starring Kiefer Sutherland.

But the marriage didn't last. Motorola and WorldGate scotched their partnership in April 2006, leaving the small Trevose, Pa.-based company alone in the CE wilderness. While the Ojo was considered a cool-looking device, its success has historically been hampered by relatively high prices.

— Jeff Baumgartner, Site Editor, Cable Digital News