WorldGate Releases Second Quarter 2006 Results
WorldGate Communications, Inc. (NASDAQ: WGAT), a leading provider of personal video phones today announced its financial results for the second quarter ended June 30, 2006.
Management Comments:
The second quarter was a transition period during which we successfully laid the foundation for the future growth of the Ojo. This quarter was marked by the achievement of three major objectives the Company had established at the start of the quarter. The first objective we accomplished was the transitioning of the Company to take direct responsibility and control for the advertising, marketing, and distribution of its products. By securing continuing and incremental distribution agreements with distributors, resellers and telecommunications service providers covering the United States, Europe, Israel, Russia, the Asia Pacific region, Japan and Latin America we are establishing a foundation for meaningful, global sales going forward. The second objective we accomplished was the price repositioning of the product by reducing the price of Ojo and improving the product offering to our retail and service operator customers. Finally, our third objective to ensure we had funding to support our development, sales and distribution efforts in order to leverage our video phone leadership role has been accomplished by the concurrent announcement today that the Company has secured up to $11 million of additional funds from Cornell Capital Partners.
Highlights of the first two areas of accomplishment are noted below. Please refer to our earlier press release today regarding the additional financing we have obtained.
Marketing and Distribution Transition
The Company has seamlessly added direct responsibility and control for the advertising, marketing, and distribution of its products.
— Transitioned all retailers associated with our former distributor. — Concluded several significant new customer deals: — Announcement of a multi-year resale and supply agreement with British Telecom providing for their purchase of WorldGate’s Ojo(TM) Shadow personal video phones for resale to their customers. The acceptance of Ojo by a service provider with BT’s credibility has added to the interest level of many other service providers. — Announcement of a multi-year agreement with Aequus Technologies Corp., a provider of communication solutions for individuals with disabilities, to use the Ojo Personal Video Phone to supply Video Relay Services (VRS) across the United States to individuals who are deaf or hard of hearing. — Announcement of a resale and supply agreement with Alta Vista Management, Inc. for Ojo Shadow personal video phone and the Ojo video phone service for Panama, Columbia and Costa Rica. — Announcement of a resale and supply agreement with Express Telecom, a Russian telecommunications provider, providing for Express Telecom’s purchase of WorldGate’s Ojo Shadow personal video phones for resale to customers in Russia. — Announcement of a resale and supply agreement with Israel Communications, a leading marketer of digital communications products in Israel, providing for the purchase of WorldGate’s Ojo(TM) Shadow personal video phones and the Ojo service for resale to customers in Israel. — Announcement of an agreement with Novatec Corporation, a Japan-based provider of network solutions, to distribute and resell WorldGate’s line of Ojo video phones in Japan. — Announcement of a resale and supply agreement with GlobalTouch Telecom, the leading provider of proprietary, vertically-integrated VoIP platforms, for the purchase of WorldGate’s Ojo and Ojo(TM) Shadow personal video phones. This agreement has significant favorable implications for Ojo penetration into VoIP provider’s offerings. — The Company expects the placement of its Ojo video phone in as many as 15 cable and network TV shows this fall, many of which will include Ojo calls as part of the script.
Product Repositioning
— Ojo(TM) Shadow was introduced into the marketplace, a lower
cost version of our personal video phone currently having a
manufacturers’ suggested retail price (MSRP) of $399 and a
street price of $299. The Company also reduced the MSRP of the
original Ojo to $499 with a street price of $399. The Shadow
has created more product excitement and interest for service
operators, retailers and consumers.
— Announcement that Ojo Personal Video Phones are now capable of
handling VoIP services, which facilitates the coupling of Ojo
with VoIP services and provides the VoIP providers with a more
attractive selling proposition.
Financial Summary:
Revenues for the three months ended June 30, 2006 were $186,000. This revenue excludes several thousand units which total over $1.2 million that were shipped to customers, but for which revenue could not be recognized in the second quarter based on various accounting revenue recognition standards. These shipments are, however, expected to be recorded as revenue beginning in the third quarter. Revenues for the three months ended June 30, 2005 were $1.4 million reflecting an inventory build by our former exclusive distributor in anticipation of product rollout. The cost of goods for the three months ended June 30, 2006 includes $466,000 primarily related to adjustments for lower inventory market valuations. No such adjustment was made for the three months ended June 30, 2005. Reserves for consumer rebates, product rework, and aggressive forward product pricing further reduced margins in the three months ended June 30, 2006.
Expenses for the three months ended June 30, 2006 were $4.1 million compared to $3.1 million for the three months ended June 30, 2005. The expenses in the second quarter 2006 included non cash charges of $225,000 from the Company’s adoption of the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment,” (“SFAS 123(R)”), using the modified-prospective-transition method. Prior to January 1, 2006, the Company did not recognize stock-based compensation cost in its statement of operations. In addition, expenses in the second quarter reflect $606,000 of penalties related to the non registration of shares previously placed with private investors. As of June 1, 2006 the registration statement covering these shares became effective and the penalty ceased.
For the three months ended June 30, 2006, the net loss available to common shareholders was $5.1 million compared to a net loss available to common shareholders of $0.5 million for the three month period ended June 30, 2005. The three months ended June 30, 2005 included a non cash gain of $2.5 million associated with the change in fair value of warrants and conversion options of the private placement funding we received in June 2004 whereas the three months ended June 30, 2006 included a non cash loss of $0.5 million for these same elements. In addition, as previously noted, the three months ended June 30 ,2006 included non cash charges of $225,000 from the Company’s adoption of the fair value recognition provisions of SFAS No. 123 and $606,000 of penalties related to the non registration of shares previously placed with private investors.
Per share loss was $0.13 available to common shareholders for the three months ended June 30, 2006 compared to income per share of $0.02 available to common shareholders for the three month period ended June 30, 2005. This increase in per share loss primarily reflects the change in the fair value of warrants and conversion options as previously noted related to the private placement funding we received in June 2004, the adoption of the fair value recognition provisions of SFAS No. 123 and penalties related to the non registration of shares previously placed with private investors.
Cash amounted to $7.2 million as of June 30, 2006, compared to $7.5 million at June 30, 2005.
“We are excited about the continued high level of interest in our Ojo Video phone and that the interest keeps snowballing with every deal we announce,” said Hal Krisbergh, Chairman and CEO of the Company. Krisbergh continued, “These deals with service operators and other distributors of our products are not only evidence of the acceptance of Ojo worldwide, but also signify that the age of video telephony has now arrived. We are extremely excited that Ojo’s quality, in terms of technology and design, is a driver for video telephony market growth, and that WorldGate is well positioned, from a first mover perspective, to lead the charge of personal video telephony and participate is this market growth. The funding we have just received further positions our Company for this growth, from research and development to global sales and marketing.”
Conference Call:
The Company has scheduled a conference call on Tuesday, August 15, 2006 at 8:30 AM Eastern time to discuss the status of its Ojo Video phone and second quarter financial results. The conference call telephone number is (800) 289-0508. The conference ID is 2624833. A replay of the conference call will be available for one week after the call on the WorldGate website at www.wgate.com
Financial Tables: —————– Three Months Ended June 30, ————————— 2006 2005 —- —- Total Revenues $186 $1,399 Cost of Revenues 739 1,266 ————- ————- Gross Margins (553) 133 ————- ————- Engineering and Development 1,540 1,243 Sales and Marketing 548 640 General and Administrative 1,846 1,017 Depreciation and Amortization 184 171 ————- ————- Total Operating Expenses 4,118 3,071 ————- ————- Loss from operations (4,671) (2,938) Change in fair value of warrants and conversion option (520) 2,466 Other Income, Net 100 106 ————- ————- Net Loss (5,091) (366) Accretion on preferred stock, dividends and deemed dividends (40) (139) ————- ————- Net Loss available to common stockholders $(5,131) $(505) Net Loss per common share Basic $(0.13) $(0.01) Fully Diluted $(0.13) $(0.01) Net Loss available to common stockholders per common share Basic $(0.13) $(0.02) Fully Diluted $(0.13) $(0.02) Weighted average common shares outstanding Basic 39,625,256 33,546,229 Fully Diluted 39,625,256 33,546,229 Six Months Ended June 30, ————————- 2006 2005 —- —- Total Revenues $696 $1,577 Cost of Revenues 1,181 1,390 ———— ———— Gross Margins (485) 187 ———— ———— Engineering and Development 2,994 2,462 Sales and Marketing 1,201 1,018 General and Administrative 4,369 1,951 Depreciation and Amortization 363 342 ———— ———— Total Operating Expenses 8,927 5,773 ———— ———— Loss from operations (9,412) (5,586) Change in fair value of warrants and conversion option (339) 7,642 Gain on contract termination 1,792 0 Other Income, Net 233 172 ———— ———— Net Income (Loss) (7,726) 2,228 Accretion on preferred stock, dividends and deemed dividends (108) (635) ———— ———— Net Income (Loss) available to common stockholders $(7,834) $1,593 Net (Loss) Income per common share Basic $(0.20) $0.07 Fully Diluted $(0.20) $0.06 Net (Loss) Income available to common stockholders per common share Basic $(0.20) $0.05 Fully Diluted $(0.20) $0.04 Weighted average common shares outstanding Basic 39,610,667 32,569,598 Fully Diluted 39,610,667 36,495,858 WorldGate Communications – Consolidated Balance Sheet Data (in thousands) June 30, 2006 December 31, 2005 ————- —————– Cash and Cash Equivalents $7,232 $16,277 Trade and Other Receivables 880 159 Inventory 1,958 2,878 Total Assets 12,063 21,229 Total Liabilities 5,031 7,133 Redeemable Preferred Stock 148 379 Total Stockholders’ Deficiency 6,884 13,717
ABOUT WORLDGATE COMMUNICATIONS INC.
WorldGate Communications, Inc. designs, manufactures, and distributes personal video phones. WorldGate’s products will be marketed to consumers through cable, DSL, VoIP and satellite service providers as well as through retail stores worldwide under the Ojo brand name. Ojo personal video phones offer high quality, real-time, two-way video communications with video messaging and an optional cordless handset. Ojo is easy to install, and is as easy to operate as a regular telephone; since it plugs into a broadband connection, no PC is required, and it uses the existing phone number. Ojo (PVP 1000) also makes conventional (or VoIP) voice-only phone calls using the existing household telephone service. Ojo’s iconic and functional design features an eye-level screen and camera, a self-viewer, a full-duplex speakerphone, photo-based caller ID and phonebook and one-touch controls for video and voice privacy. Ojo video phone is designed to conform to industry standard protocols (SIP) and utilizes enhancements to the latest technology for voice and video compression (H.264) to achieve superior quality at data rates as low as 100 Kbps. WorldGate has been awarded a patent for its distinctive design and has other patents pending for its specialized technology. This unique combination of functional design, advanced technology and use of broadband networks provides real-time video communication experiences that bring families and friends closer together, and for the first time provides consumers with a high-quality, affordable video phone. More information on WorldGate and the Ojo video phone can be accessed at www.wgate.com.
WorldGate is traded on NASDAQ under the symbol WGAT. WorldGate and Ojo are trademarks of WorldGate Service Inc.
This press release may contain forward-looking statements that are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Expressions of future goals and similar expressions including, without limitation, expressions using the terminology “may”, “will”, “believes”, “plans”, “expects”, “anticipates”, “predicts”, “forecasts”, and expressions which otherwise reflect something other than historical fact are intended to identify forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, including the timely development and market acceptance of products and technologies, the ability to fund operations or raise additional capital if needed and the other factors described in the Company’s filings with the Securities and Exchange Commission. The actual results may differ materially from any forward-looking statements due to such risks and uncertainties. No obligation is undertaken to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release