SecProbe.io

CORRESP
1
filename1.htm

QuickLinks
 -- Click here to rapidly navigate through this document

[Letterhead of Walter J. Mostek, Jr.]

August 29,
2005

VIA
EDGAR

Mr. Larry
Spirgel

Assistant Director

Securities and Exchange Commission

Mail Stop 0407

450 Fifth Street, NW

Washington, DC 20549

RE:WorldGate
Communications, Inc.

Registration Statement on Form SB-2

Filed May 24,20M File No. 333-125205

Form 10-KSB
for the fiscal year ended December 31, 2004

Filed March 31, 2005

File No. 0-25755

Dear
Mr. Spirgel:

        WorldGate
Communications, Inc. ("WorldGate" or the "Company") has filed herewith a pre-effective amendment ("Amendment No. 1") with respect to the
above-described Registration Statement (the "Registration Statement"). This letter is in response to the comments you made in your letter dated June 21, 2005, relating to the Registration
Statement, and the above-described Form 10-KSB. Listed below are your specific comments together with the Company's responses.

        Enclosed
for your reference are three copies of Amendment No. 1, marked to show the changes indicated in this letter. The Company has on the date hereof filed Amendment
No. 1 via EDGAR to include the changes indicated below.

   Form SB-2

General

1.Please provide us with copies of your artwork prior to circulating preliminary prospectuses. Since we may have comments that could result in material revisions
to your artwork, we suggest that you provide us with enough time to finish commenting on your artwork prior to circulating preliminary prospectuses. In order to expedite this process, you may submit
your artwork to us on a supplemental basis. See Item VIII of the March 31, 2001 quarterly update to the Division of Corporation Finance's "Current Issues and Rulemaking Projects Outline"

        Company Response: The Company does not intend to use artwork other than the Company's logo, which has been filed.

Prospectus Summary, page 3

2.Please revise to decrease the length of your summary. It should discuss only the key aspects of the offering and your operations. Much of the discussion you
currently include does not appear so highly material as to merit inclusion in the summary. Consider eliminating here, or significantly reducing, the extensive discussion on pages one and two about the
technology that is involved in your products and the detailed history of your capital-raising efforts and business awards, which discussion is more appropriate for your business section. As part of
your revisions, ensure that you provide a balanced discussion by discussing the following in the summary:

•that your auditors have raised a concern as to your ability to continue as a going concern;

•the amount of your net income or losses for the last two fiscal years and periods in 2005;

•your recent change in business focus and that you do not expect significant revenues in 2005 and possibly beyond;

•your new significant reliance on the marketing and distribution relationship you have with Motorola; and

•a brief overview of the key aspects of the offering, including the number of shares being offered for resale, by whom, and the percentage of your
outstanding common stock the offered shares represent.

        Company
Response: The Company has revised its disclosure on pages 1-2 in light of the Staff's comment.

3.We note your reference to the Ojo Pvp being awarded a "2005 CBS Best of Innovations Award." Tell us in your response letter the criteria for being considered
for this award. Tell us the number of companies considered for the award and whether any financial payment was required for consideration for the award.

        Company
Response: The International CES, Innovations Design and Engineering Awards annually recognizes the newest consumer electronics products that exhibit
excellence in design and engineering. Anyone who manufactures, designs, engineers or promotes consumer electronics products marketed in the United States, or is an agent of the organization or
individual, was eligible to submit entries. Products eligible for the award were any new products that are or will be in the marketplace and available to U.S. consumers no earlier than
January 1, 2005 and no later than June 30, 2006. Selected products were are also required to be available for display at Innovations Plus, located at the Sands Expo and Convention Center
at International CES, held January 5-8, 2006 in Las Vegas, Nevada. Applicants for the award were required to pay an entry fee ranging in amount from $225—$950, depending
on whether the applicant was a member of certain organizations, and the date the application was submitted. Additional fees were required if applicants submitted applications in certain formats. The
Company understands there were in excess of 1,000 entries that competed for the award in 2005.

2

Risk Factors, page 4

General

4.Include a risk factor that discusses the significance of the auditors' going concern qualification in its report and why the circumstances pose a risk to your
investors.

        Company
Response: The Company has added a risk factor on page 4 in light of the Staff's comment.

5.We note your disclosure in your March 31, 2005 Form 10-Q and 2004 Form 10-K concerning your disclosure controls and
procedures and internal control over financial reporting. Tell us in your response letter what consideration you have given to including a risk factor that discusses the significance of your
certifying officers' determination that you have a material weakness and why it poses a risk to your investors.

        Company
Response: As the Staff has noted, the Company's chief executive officer and chief financial officer previously concluded that a "significant
deficiency", that is considered to be a "material weakness," (as defined under the standards established by the American Institute of Certified Public Accountants) existed with respect to the
Company's reporting of complex transactions. To address this material weakness, the Company has engaged outside experts to provide counsel and guidance in areas where the Company cannot economically
maintain the required expertise internally (e.g., with the appropriate classifications and treatments of complex and non-routine transactions). In considering whether to include a risk
factor that discusses the material weakness, the Company concluded that the infrequency of complex transactions, coupled with the Company's engagement of outside experts to address the material
weakness, made a risk factor unnecessary. Furthermore, on the Company's periodic report on Form 10-Q for the quarter ended June 30, 2005, the material weakness determination
was eliminated as a result of the Company's remediation.

Our ITV Business has accounted for most of our revenues to date...,page 4

6.To assist investors in realizing the magnitude of the risk, please indicate here when you "discontinued the ITV Business and transitioned to become a developer,
manufacturer and seller of video phone products." Also indicate what you mean by "near term"; do you mean the next twelve months?

        Company
Response: The Company has revised its disclosure on page 4 in light of the Staff's comment.

We will rely on third parties to provide certain components...,page 5

7.Please state that your "formal relationship" with Mototech involves a contract and indicate the relevant material aspects, including the contract's
term.

        Company
Response: The Company has revised its disclosure on page 5 in light of the Staff's comment.

We will rely on third. parties to provide certain marketing..., page 5

8.Please state the relevant material aspects of the Motorola agreement, particularly the ability of Motorola to unilaterally terminate the agreement and which
party controls the volume of products being marketed or distributed. Also address the concerns to investors associated with your having an exclusive distributor for your
products.

        Company
Response: The Company has revised its disclosure on page 5 in light of the Staff's comment.

3

We may not be able to achieve competitive pricing in the marketplace, page 6

9.Delete the mitigating language "Although we anticipate cost reductions and volume manufacturing will reduce the price of our products."

        Company
Response: The Company has revised its disclosure on page 6 in light of the Staff's comment.

We may not have sufficient working capital...,page 8

10.This risk factor appears to discuss multiple risks, ranging from your ability to fund operations to potential dilution your security holders would face if you
were to obtain additional financing. Revise by making each material risk its own risk factor.

        Company
Response: The Company has revised its disclosure on page 8 in light of the Staff's comment.

Selling Security Holder, page 11

11.Please tell us in your response letter on what basis Mr. Chou disclaims beneficial ownership of the 1,310,158 shares of Worldgate common stock held by
Mototech; we note that Mr. Chou is Mototech's chief executive officer and as such appears to have voting and investment power over the shares held by Mototech. Absent a formal agreement
preventing Mr. Chou from directly or indirectly exercising voting or investment power over the shares owned by Mototech all should be included in his beneficial ownership (his disclaimer of
beneficial ownership could be reflected in a footnote to the table).

        Company
Response: Mr. Chou is the CEO of Mototech Inc., which also has holdings of WorldGate common stock. The Company has been advised that,
as CEO, Mr. Chou is involved in investment decisions as well as voting decisions with respect to the WorldGate common stock. The Company understands that these decisions are made at the board
level of Mototech of which Mr. Chou is a member and that Mr. Chou is not solely responsible for making these decisions. The Company has revised the selling security holder table to
reflect Mr. Chou's disclaimer of beneficial ownership in a footnote to the table.

12.In the table, include the percentage of Worldgate common stock Mr. Chou will beneficially own following the offering. See Item 507 of
Regulation S-B.

        Company
Response: The Company has revised the selling security holder table in light of the Staff's comment.

13.Tell us in your response letter whether Mr. Chou is a broker-dealer or an affiliate of a broker-dealer. We may have further
comments.

        Company
Response: Mr. Chou has advised the Company that he is not a broker-dealer or an affiliate of a broker-dealer.

Management's Discussion and Analysis, page 13

14.Revise your management's discussion and analysis so that your presentation of your financial figures is consistent throughout. We note your representation that
all dollar amounts are expressed in thousands, except for per share amounts; however, you disclose on page seventeen that the company redeemed its equity interest in TVGateway for $600,000 (which
would be $600 million) in cash.

        Company
Response: The Company has revised its management's discussion and analysis in light of the Staff's comment.

4

Results of Operations. page 13

General

15.We note that you list eight of your significant accounting policies as critical accounting policies; however, it is not clear why the estimates involved in
each are inherently uncertain. For example, provide further detail as to why you consider the estimates made in connection with your accounting for discontinued operations subject to a high degree of
uncertainty.

        Company
Response: The Company has revised its disclosure on page 13 in light of the Staff's comment.

16.Discuss any known trends, events or uncertainties that have or are reasonably likely to have a material impact on your financial condition, such as revenues,
income or expenses from continuing operations and liquidity. Explain whether and why you expect revenues to increase, decrease, or remain the same in the upcoming year. See Item 303(b) of
Regulation S-B and consider our guidance in Securities Act Release No. 33-8350 available on our web site.

        Company
Response: The Company has revised its disclosure on page 13 in light of the Staff's comment.

Three Months Ended March 31, 2005 and March 31, 2004, page 15

17.Please disclose and discuss the reasons for the changes in fair value of the warrants and conversion options resulting in a $5.2 million gain for the
three months ended March 31, 2005.

        Company
Response: The Company has revised its disclosure on page 15 in light of the Staff's comment.

Liquidity and Capital Resources. page 17

General

18.Please discuss what steps you plan to take to reach profitability and to cure the problems underlying the going concern qualification in the auditors'
report.

        Company
Response: The Company has revised its disclosure on page 17 in light of the Staff's comment.

19.Please reconcile your disclosure here with that in the notes to your financial statements which notes suggest TVGateway redeemed the interest you had held in
TVGateway for $600,000 in accordance with the redemption agreement.

        Company
Response: The Company has revised its disclosure on page 17 in light of the Staff's comment.

20.Also include in your discussion of the Mototech agreement in management's discussion and analysis your description of Mototech's consideration for the 625,000
shares of your common stock that you issued in December 2003. We note your description on page F-8.

        Company
Response: The Company has revised its disclosure on page 17 in light of the Staff's comment.

Quantitative and Qualitative Disclosures about Market Risk, page 18

21.As disclosures under this heading are intended to clarify your exposures to market risk associated with activities in derivative financial instruments, which
include your detachable warrants and
5

 conversion options, please add to your qualitative information about market risk detailed information on:

•How your detachable warrants and conversion options are primary market risk exposures;

•How exposures regarding your detachable warrants and conversion options are managed. Such descriptions shall include, but not be limited to, a
discussion of the objectives, general strategies, and instruments, if any, used to manage those exposures; and

•Changes in either in your detachable warrants and conversion option exposures or how those exposures are managed, when compared to what was in effect
during the most recently completed fiscal year and what is known or expected to be in effect in future reporting periods.

 See Rule 408 of the Securities Act.

        Company Response: In June 2004, WorldGate completed a private placement of redeemable preferred stock. The Series A
Convertible Preferred Stock has attached warrants and conversion options. Specifically, the holders of the Preferred Stock may convert their shares into our common stock at a conversion price of $2.35
per share. In addition the Company may force conversion of the Preferred Stock into common stock if the Company achieves certain price targets for its common stock and
satisfaction of certain other conditions, such as the existence of an effective registration statement. In either event the conversion price is subject to adjustment in the event the Company enters
into another transaction which is dilutive to the subject transaction. As part of this transaction, the Company has also issued five-year warrants to purchase 1.6 million shares of
the Company's common stock, one-half of the warrants at an exercise price of $2.69 per share and the remaining half at an exercise price of $3.14 per share. The preferred stock has a
dividend rate of 5% per annum, payable quarterly, either by cash or through the issuance of common stock at the Company's option. The Preferred Stock has a staged maturity over three years with
one-third of the preferred stock to be redeemed after 1