10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to         

Commission file number: 000-25755

WorldGate Communications, Inc.

(Exact name of registrant as specified in its charter)

Delaware	23-2866697
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3190 Tremont Avenue Trevose, Pennsylvania	19053
(Address of principal executive offices)	(Zip Code)

(215) 354-5100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 Par Value

(Title of Class)

                Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No  x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.  o   No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of  “accelerated filer, large accelerated filer and Smaller Reporting Company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer  o Smaller Reporting Company    x

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

The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $17million as of June 29, 2007, based on the closing sale price of $0.50 per share of common stock, as reported on the NASDAQ Capital Market.

The number of shares of the registrant’s common stock outstanding as of April 16, 2008 was 57,788,747.

DOCUMENTS INCORPORATED BY REFERENCE

None

WORLDGATE COMMUNICATIONS, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2007

TABLE OF CONTENTS

PART I
Item 1. Business	1
Item 1A. Risk Factors	5
Item 2. Properties	11
Item 3. Legal Proceedings	11
Item 4. Submission of Matters to a Vote of Security Holders	11
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6. Not required	13
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.  Not Required	23
Item 8.  Financial Statements	F - 1
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	24
Item 9A. Controls and Procedures	24
Item 9B.  Other Information	25
PART III
Item 10. Directors, Executive Officers and Corporate Governance	25
Item 11. Executive Compensation	28
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13. Certain Relationships and Related Transactions and Director Independence	35
Item 14. Principal Accountant Fees and Services	36
Item 15. Exhibits and Financial Statement Schedules	37

WORLDGATE COMMUNICATIONS, INC.

This report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ significantly from those anticipated in these forward-looking statements. Factors that may cause such a difference include, but are not limited to, those set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as those discussed elsewhere in this report.

PART I

Item 1. Business

WorldGate Communications, Inc. was incorporated in Delaware in 1996 to succeed to the business of our predecessor, WorldGate Communications, L.L.C., which commenced operations in March 1995.  In April 1999, we completed our initial public offering of 5,750,000 shares of our common stock. Our common stock is traded on the NASDAQ OTC Bulletin Board under the symbol “WGAT.OB.”  Our executive offices are located at 3190 Tremont Avenue,  Trevose, Pennsylvania 19053.

Overview

Since our formation in 1995 and until the first quarter of 2004, we were in the business of developing and selling interactive television, or ITV, technology, products and services for use in conjunction with cable TV broadband networks (the “ITV Business”). Using our solutions, cable TV operators branded, marketed, and offered a wide variety of ITV packages to consumers. These packages included walled gardens of information, communications solutions complete with Internet-based e-mail and chat, and Web surfing, all presented on the TV set and through the standard television distribution infrastructure.  During 2003 we elected to shift our business away from the ITV Business and toward a new video phone product and associated business.  The design of our first video phone product, branded as Ojo, was substantially completed in late 2004 and field trials were commenced. Commercial distribution of this product commenced in the spring of 2005. We began generating revenue from commercial shipment of our Ojo product in April 2005.

On April 28, 2004, we entered into a multi-year agreement with General Instrument Corporation d/b/a the Connected Home Solutions Business of Motorola, Inc. (“General Instrument”) for the worldwide distribution of the Ojo personal video phone. This agreement provided for General Instrument to be the Company’s exclusive distributor of its broadband video phone products and for the Company to be General Instrument’s exclusive supplier of its broadband video phone products.  On February 17, 2006, we mutually agreed with General Instrument to end this agreement which terminated exclusivity for both parties. In addition to its then current role for development and manufacture of Ojo, the Company assumed direct responsibility and control for the advertising, marketing, and distribution of its products.   Under its agreement with General Instrument, the Company had been active in marketing and promoting its products, and working with General Instrument to distribute Ojo after the agreement ended.  The Company continued the rollout of Ojo using many of the same distributors, retailers and service providers as General Instrument, and has subsequently expanded distribution to service providers and retailers around the world.  As part of ending its agreement with General Instrument, and in anticipation of the Company’s inventory requirements as a result of taking full responsibility for product distribution, we negotiated the right to buy back about two-thirds of the units sold to General Instrument, valued at approximately $2,765,000 (based upon the original sales price to General Instrument), for approximately $1,064,000. This is less than half of what it would have cost the Company to purchase the same inventory from our manufacturing sources.  As a result the Company recorded a reserve for returns and reduced revenue in the amount of approximately $2,310,000 during the fourth quarter of 2005. In addition the Company recorded no revenue for units shipped to General Instrument in the first quarter 2006 and recorded a gain on termination of this agreement of approximately $1,843,000 for the year ended December 31, 2006 (see Item 7 – Managements Discussion and Analysis of Financial Condition and Results of Operations).

On May 9, 2006 the Company entered into a multi-year agreement with Aequus Technologies Corp.  (“Aequus”), for Aequus to purchase Ojo video phones through its wholly owned subsidiary Snap Telecommunications Inc., (Snap!VRS) , a provider of Video Relay Services (VRS) and Video Remote Interpreting (VRI) services for the deaf and hard of hearing.   On June 20, 2007 the Company announced that it had expanded its relationship with Aequus and Snap!VRS modifying their earlier agreement to provide for the parties to work collaboratively to identify the most desired Ojo features and capabilities that will provide the best video phone experience for the VRS user community and that would enable Ojo to be the preferred VRS video phone.

In the later part of the third quarter of 2007 we commenced product shipments to Snap!VRS  VRS is a form of Telecommunications Relay Service (TRS) that enables persons with hearing disabilities who use American Sign Language (ASL) to communicate with voice telephone users through video equipment, rather than through typed text.  VRI is the use of an interpreter located at a remote location, which is accessible through a video connection, and provides interpreting services to two (or more) people who are together and require an interpreter. The Company’s Ojo video phone provides this equipment link for the hard-of-hearing

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VRS or VRI user with a TRS operator (called a Communications Assistant, or CA) so that the VRS or VRI user and the CA can see and communicate with each other using ASL in signed conversation.  VRS and VRI enable deaf and hard-of-hearing customers to improve their connection with people in their personal and business lives. This market is particularly attractive since the use of video as part of the communication link is critical, and accordingly, the video phone is a major contributing component.  The friends and family of the deaf and hard of hearing customers are a natural expansion to the VRS and VRI markets.  Entrance in these markets has contributed significantly to the Company’s efforts to increase awareness of and sales of its products.  In the third quarter of 2007, the Company began to ship its video phone product to Snap!VRS.  As part of its June 2007 agreement with Aequus, the Company began to recognize product revenue at the time of shipment of its video phone, and also began to recognize service fee revenues at the time it receives this customer’s confirmation of the service fee earned by the Company.

On March 31, 2008, the Company entered into a new agreement with Aequus and Snap!VRS. This new agreement, inter alia, provides for the (i) resolution of a dispute with Aequus regarding amounts the Company claimed were owed to the Company by Aequus and the termination by the Company of service to Aequus, (ii) payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, (iii) agreement to arbitrate approximately $1.4 million claimed by the Company to be owed by Aequus and (iv) purchase of an additional $1.5 million of video phones by Aequus (the “Aequus Transaction’).  As a result of this new agreement Aequus is planning to build a new data center, with support and training provided by the Company, and upon completion, directly operating a video phone service for its customers.

High speed data (“HSD”) network users also provide a large, and we believe conducive, target market for a quality video phone offering.  Video phone sales are expected to be derived from new technology adopters and regular long distance communicators such as families and close friends. We also expect that the business-to-business opportunity will be attractive as a video phone provides means to improve interpersonal communication and multi-location productivity.  Furthermore we expect that the growth in the Voice over Internet Protocol market (“VoIP”) will also help drive sales of our video phone since it can also serve as a VoIP endpoint.

Our business model is based on the sale of video phones and related products and services. Our products are being marketed to HSD network operators (including for purposes hereof, Aequus Technologies) as well as to consumers through traditional consumer electronics distribution channels. We believe that HSD operators could realize significant recurring revenue streams associated with offering our product to end users. We have also developed this product to require very minimal capital investment or incremental costs by such operators. Our marketing objective is to have our video phones supplement and hopefully replace ordinary home and business phones worldwide.

General Product Description

We have developed a video phone, ergonomically designed specifically for in-home and business, personal video communication. We have identified several issues that have impeded with commercial success and consumer acceptance of video phones and sought to address each of these issues within the Ojo video phone. The Ojo video phone was designed for use on the existing HSD network infrastructure. Certain models of the Ojo phone will, however, also connect to the analog phone line for interoperability with the voice only communications offered by the existing public switched telephone network (“PSTN”) and VoIP networks. Ojo, therefore, can be used for video calls, and ordinary voice only calls as well as VoIP calls. We believe that Ojo is differentiated, both from competitors and from previous efforts at personal video telephony, by providing: true to life communication (meaning that images and sounds are synchronized, that there are minimum delays between the two ends of the communication, and that the quality of the image is similar to what is experienced with television), interoperation with the PSTN and VoIP, ease of deployment by HSD operators, ease of use by consumers, and a highly styled ergonomic design. We believe Ojo uniquely leverages the recent development of a state of the art connectivity infrastructure, as well as the convergence of the latest improvements in compression technology, processing power and bandwidth availability, to help ensure, enable and maintain dedicated high quality end-to-end connections.

Material Developments for WorldGate since December 31, 2007

On February 4, 2008, the Company issued a current report on Form 8K indicating that it was in a dispute with a customer (Aequus) over the payment of significant monies which the Company believed were owed to it.  The customer’s refusal to pay such monies had contributed to a shortfall in the operating cash available to the Company to continue operations, and accordingly, on January 30, 2008, the Company shut down its operations.  The Form 8K further indicated that this was a first step to winding down its business, which would occur if the Company was not able to secure payment of the monies believed to be owed to by the customer, and/or new financing.

On March 31, 2008, the Company entered into a new agreement with Aequus.  This new agreement, inter alia, provides for the (i) resolution of a dispute with Aequus regarding amounts the Company claimed were owed to the Company by Aequus and the termination by the Company of service to Aequus, (ii) payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, (iii) agreement to arbitrate approximately $1.4 million additional dollars claimed by the Company

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to be owed by Aequus and (iv) purchase of an additional $1.5 million of video phones by Aequus (the “Aequus Transaction’).  As a result of this new agreement Aequus is planning to build a new data center, with support and training provided by the Company, and upon completion, directly operating a video phone service for its customers.  In anticipation of completing the contract with Aequus the Company resumed operations on March 11, 2008.

On February 5, 2008, February 13, 2008, February 15, 2008, and April 8, 2008, the Company received notices from YA Global, holder of the Company’s convertible debentures, claiming that the Company was in default of the terms of the debentures for stating its intent to wind down its business, failure to maintain current financial statements in the registration statement relating to the sale of the Company’s common stock issuable upon conversion of one of those debentures, to comply with a covenant to their satisfaction that provided for the disclosure of information they considered material,  and entering into the agreement with Aequus Technologies, and as a result YA Global was exercising its right to accelerate payment of the full principal amount of the debentures. While the registration statement was not effective as of December 31, 2007, the underlying alleged default with respect to the registration statement was in any event cured by the amendments to Rule 144 that became effective on February 15, 2008, obviating the need to maintain that registration statement. The Company has notified YA Global that it disputes these claims and whether they constitute a continuing event of default under the debentures. The Company has also notified YA Global that their right to accelerate payment is also disputed. The Company is working with YA Global in an effort to settle their disputes regarding the claimed defaults and acceleration. Although the Company disputes YA Global’s claims of default,  and does not believe YA Global has any basis to accelerate payments on the debenture, the Company has reclassified the YA convertible debenture to a current liability on the accompanying consolidated financial statements, solely in light of the existence of the alleged claims.

As of December 31, 2007, on a consolidated basis, we had approximately 39 full-time employees. Since December 31 2007 and until April 4, 2008 the Company reduced its staffing by an additional 14 employees to 25 employees.

Our corporate headquarters is located in Trevose, Pennsylvania in a leased facility consisting of approximately 42,500 square feet at an annual fee of $11.74 per square foot, with a 3% increase annually. The current lease has a five year term effective September 1, 2005. The lease is cancelable by either party with eight months notice, with a termination by the tenant including a six months termination fee. In March 2008 the parties agreed in principle to a new lease (and the cancellation of the current lease with no termination fee) for a smaller space within the current facility consisting of approximately 17,000 square feet at an annual fee of $7 per square foot. This new lease is expected to be cancelable by either party upon 90 days notice with no termination cost.

Business Plan

General.  Our business model is primarily based upon the sale of Ojo video phones and related products and services.  It is our plan for Ojo to be distributed through and in partnership with HSD network providers, as well as through traditional electronics distribution channels. Video phone service, using the Ojo video phone, is expected to be offered by HSD network providers as a means of attracting new HSD subscribers as well as maintaining existing subscribers. We believe that HSD network providers could realize potentially significant recurring incremental revenue streams associated with offering products such as our Ojo video phone, and accordingly we believe they will embrace the concept and business model. The suggested consumer offering for video phone service follows the traditional HSD model, which may involve a subsidy of the required hardware by a recurring service fee. We anticipate that video phone service subscribers will be able to either purchase an Ojo video phone or lease a unit from the HSD network provider.  There is also a parallel market for sales of Ojo video phones directly to consumers through the standard consumer electronic channels. Sales of Ojo video phones through these retail channels still require a video phone service and the Company is currently offering such a video phone service, with an associated monthly service fee, for units sold in this manner.  It is our plan for Ojo video phones to be sold to the VRS and VRI markets which are particularly attractive since the use of video as part of the communication link is critical, and accordingly, the video phone is a major contributing component.  The friends and family of the deaf and hard of hearing customers are a natural expansion to the VRS and VRI markets.

Manufacturing. Ojo video phones are manufactured in Asia, to take advantage of the lower labor, tooling and components costs. A formal relationship with Mototech Inc. (which is not an affiliate of General Instrument or Motorola) was established for the volume manufacture of Ojo. Mototech, along with U.S. Robotics and SMC Networks, are affiliates of the Accton Technology Group, a group of Taiwanese manufacturers that we believe are well-known in the electronics industry. Mototech’s responsibilities in this role include:

· product design finalization for manufacturing;

· component selection and procurement;

· tool sourcing and management;

· coordination of Ojo manufacturing;

· implementation and monitoring of Ojo’s Quality Plan; and

· product cost reduction.

Under the agreement, Mototech is required to manufacture products in response to purchase orders issued by our company. 

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Although our company has no obligation to purchase any particular volume of products under the agreement, Mototech is generally required to accept all purchase orders, subject to certain limits described in the agreement.  As part of our agreement with Mototech we retain formal sign-off control over any product, specification, or component changes proposed by Mototech. We also maintain all rights to the Ojo technology and intellectual property, as well as the right to second source the Ojo product.  Our agreement with Mototech permits either Mototech or our company to terminate the agreement at any time by giving 90 days written notice to the other party.  The components and raw materials used in our Ojo video phone product are generally available from a multitude of vendors and are sourced based, among other factors, on reliability, price and availability.

Product Sales and Distribution. Ojo is being marketed to the VRS and VRI markets in particular as well as being marketed domestically and internationally to both the residential and business sectors through standard consumer and business electronics channels. In addition we market our products through HSD providers in a manner similar to broadband modems and VoIP services.

Competition

Many of the current video phone manufacturers have focused on two applications—business video phones and video conferencing. Business video phones are designed to be located on an executive’s desk and used to communicate with colleagues, employees and customers. Video conferencing units are designed for conference rooms where multiple people on one end engage with multiple people on the other end. The following is a brief description of the potential competitors and their impact on the market.

Business Phone Products.  Most of these products are targeted for corporate use and are relatively high priced. Generally, the ergonomic design of these units emulates that of a traditional office telephone with the addition of a camera and display. The products use standard corporate gray or black material colors, familiar button shapes and designs, traditional style handsets for non-speakerphone conversation and often have business feature sets. For connectivity these products use VoIP, PSTN or ISDN. The main competitors in this sector include 8x8 Inc., Motion Media PLC, Grandstream, and Leadtek Research Inc.

Video Conference Products.  D-Link Systems, Inc. produces a TV-based video phone product that is targeted to consumers as a lower cost video conferencing device. D-Link uses the home television as the display device and utilizes either the TV’s speaker or connection to a standard analog phone for the audio portion of the call. The main disadvantage of this product is that it requires a television to send and receive calls.  In many cases, this would obstruct the ability to watch television while a call is in progress thereby disrupting family television watching for the length of the call. Numerous video conferencing products also exist for the business market.  Typically these devices cost $2,000 or more and involve complex installations of one or more cameras, monitors, microphones and speakers within a conference room setting. The videoconference nature of these products eliminates the ability to communicate on a private, one-on-one level. The main competitors in this sector include Sony, Sorenson Media and Polycom Inc.

Web Cam Products.  Web cams are different from other competitive products in that they did not arise from either business video phones or video conferencing. Rather, the use of web cams began in the early days of the Internet when “techies” were expanding the capabilities of PC-based content and applications with low-cost computer attachments. Currently, web cams are often used to display visual information as well as a means for personal communication. Many popular web sites use web cams to show traffic, weather, adult activities and other visually interesting subjects. Software such as Net Meeting, Instant Messenger and MSN Messenger, is being supported by web cams to provide a video chat option to these Internet-based services. Current web cams typically lack the quality of dedicated video phone devices.  They also require the utilization of separate personal computers which may not be co-located in the same areas where convenient video calls would occur.  Competitors in this category include Logitech, Inc., Intel Corporation, 3Com Corporation, and Creative Technology, Ltd.

Hybrid Web Cam-Business Phone Products.  In recent months, Cisco Systems, Inc. introduced a hybrid video phone product that is designed for the business phone market. The Cisco product consists of a web cam device and host software that enables video phone functionality when used in conjunction with an IP phone and call processing hardware. We believe this product requires a significant capital investment for implementing the call processing hardware and IP phones.

Intellectual Property

We plan to rely on patent, trade secret, trademark and copyright law to protect our video phone intellectual property.  We have been awarded patents for its distinctive design (a design patent issued in December 2006 and valid for a 14 year term thereafter) and technology (a technology patent containing 39 claims issued in April 2007 related to a video phone system and method and valid for a 14 year term thereafter) and has other patents pending.  Our patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent. Accordingly, there can be no assurance that additional patents will be issued pursuant to our current or future patent applications or that patents issued pursuant to such applications will not be invalidated, circumvented or challenged. Moreover, there can be no assurance that the rights granted under any such patents will provide competitive advantages to us or be adequate to safeguard and maintain our proprietary rights. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.

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Government Regulation

Our Ojo video phone is required to comply with various laws and government regulations, including Parts 15 and 68 of the Federal Trade Commission’s (“FCC”) regulations in the United States, which relate to radio frequency devices and to terminal equipment that is connected to the telephone network. The legal and regulatory environment that pertains to our business is uncertain and changing rapidly. New legislation or regulation, such as that currently being considered for limiting the environmentally hazardous substances that are currently found in most electronic devices, could substantially impact our ability to distribute our Ojo video phone products. Similarly the FCC and other comparable regulatory authorities could undertake an examination of whether to impose surcharges or additional regulations upon certain providers of Internet protocol, or IP, based communication services. The imposition of regulations on IP communications services may negatively impact our business.

Research and Development

To date, our engineering and product development has been a significant focus of the Company. The principal focus of our current engineering activities is the continued development and enhancement of our Ojo video phone. Development of the Ojo video phone has required combining technical experience and knowledge from two historically separate industries, cable and telephony. Our engineering and development expenditures in connection with our Ojo video phone were approximately $6,238,000 and $5,315,000 for the years ended December 31, 2006 and 2007 respectively, virtually all of which was spent on the development of the video phone product and services.

Employees

As of December 31, 2007, on a consolidated basis, we had approximately 39 full-time employees. With the exception of one employee located in Houston, Texas, our employees are all located in Trevose, Pennsylvania. None of our employees are represented by a labor union, and we have no collective bargaining agreement. We consider our employee relations to be good.

Available Information

You may access, free of charge, on our website, www.wgate.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.  We endeavor to post these reports on our website as soon as reasonably practicable after we file such material with, or furnish it to, the SEC.

Item 1A. Risk Factors.

In addition to other information in this Form 10-K, the following risk factors should be carefully considered in evaluating our company and our business. Investing in our common stock involves a high degree of risk, and you should be able to bear the complete loss of your investment. We also caution you that this Form 10-K includes forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. Future events and circumstances and our actual results could differ materially from those projected in any forward-looking statements. You should carefully consider the risks described below, the other information in this Form 10-K ,the documents incorporated by reference herein and the risk factors discussed in our other filings with the Securities and Exchange Commission when evaluating our company and our business. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known by us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our common stock could decline and investors could lose all or part of the money paid to buy our common stock.

We cannot reliably project our continued revenues, and we expect to incur significant losses for an indefinite period of time.

Our video phone business involves the continued development of a new product line with no market penetration, in an undeveloped market sector.  The extent and timing of our revenues depends on several factors, including the rate of market acceptance of our products, and the degree of competition we face from similar products.  We cannot predict to what extent our video phone product will produce revenues, or whether we will ever reach profitability. We also cannot predict when, and to what extent, competition will emerge. If we are unable to achieve significant levels of recurring revenue from our video phone business, our losses will likely continue indefinitely. If this occurs, the market price of our common stock and our viability as a going concern could suffer.

There is substantial doubt about our company’s ability to continue as a going concern.

Our company has suffered recurring losses from operations and had an accumulated deficit of $261,575,000, a stockholder’s

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deficiency of $1,462,000 and a working capital deficit of $2,380,000 that raised substantial doubt about our company’s ability to continue as a going concern. We have also experienced severe cash shortfalls, deferred payment of some of our operating expenses, and shut down operations for a period of time in early 2008 to conserve our remaining cash. The Company will require cash to continue operations by securing cash investments in the Company and through the increase of product sales.  No assurances can be given that we will be able to obtain the necessary cash for the Company to operate as a going concern, and further curtailment of our operations could be necessary.

We are subject to complex and changing rules and regulations concerning corporate governance and financial accounting standards, which may affect our reported financial results or the way we conduct business, or our ability to ensure proper financial reporting and adequate internal controls.

The Sarbanes-Oxley Act, which was signed into law in July 2002, among other things, mandated that companies adopt new corporate governance measures and imposed comprehensive reporting and disclosure requirements.  These rules, regulations and requirements increased the scope, complexity, and cost of our corporate governance, reporting, and disclosure practices.  Furthermore, generally accepted accounting principles in the United States, including those affecting the accounting for complex financial transactions, have been the subject of change as well as frequent review and interpretation by the SEC, as well as by national and international accounting standards bodies.  Such changes, reviews and interpretations may have a significant effect on our reported results of operations, including the results of transactions entered into before the effective date of the changes.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.  Additionally, section 404 of the Sarbanes-Oxley Act of 2002 requires us to assess the design and effectiveness of our internal control systems.   Based on management’s assessment, management concluded that, as of December 31, 2007, due to significant deficiencies, including lack of segregation of duties, lack of appropriate IT security and program change controls, insufficient documentation of period-end reviews, the improper recording of revenues, not recording inventory at the lower of cost or market, and the determination of the grant date for stock based awards, that when aggregated, resulted in a material weakness.

The changes or additions required to our systems and procedures and the staffing necessary to complete the documentation, evaluation and any required remediation of our systems of internal control to meet the required compliance guidelines are costly and will negatively impact future financial results.  In addition there is no assurance that the necessary resources required for remedy of our weaknesses will be available, and even if they are available there is no assurance that we will be able to conclude that our systems are appropriately designed or effective, or that a material weakness will not be found in our internal controls over financial reporting, which could result in a material misstatement in future financial statements.

 We are currently reliant primarily on one customer

We currently are heavily dependent on one customer, Aequus Technologies, for the majority of our revenue. On March 31, 2008, the Company entered into a new agreement with Aequus Technologies Corp. and Snap Telecommunications, Inc. (collectively “Aequus”) This new agreement, among other things, provides for payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, an agreement to arbitrate approximately $1.4 million additional dollars claimed by the Company to be owed by Aequus and for the purchase of an additional $1.5 million of video phones  If Aequus is not successful, or if their activities do not lead to significant sales of its product, their operating results will be adversely affected, and their ability to pay all or any of the monies obligated pursuant to the agreement, including payment for products purchased or  the payment of any monies the Company is awarded as a result of  agreed arbitration with Aequus, may not materialize or could be significantly reduced, and the Company may, as a result, have insufficient capital to operate its business.  The loss of business or payments from Aequus could materially impair our continuing operations.

We are dependent on a single line of business that currently has no significant history of revenues. We cannot predict our future results because our video phone business has no significant operating history.

Our primary line of business is the development of video phone products and technology.  We began generating revenue from commercial shipment of our Ojo product in April 2005. Given that our video phone business involves the development of a new product line with no market penetration, in an underdeveloped market sector, no assurances can be given that sufficient sales, if any, will materialize. Should this business fail to generate sufficient sales to support ongoing operations there can be no assurance that we will be able to develop alternate business lines.   Investors should consider the risks and uncertainties that we may encounter as an early-revenue-stage company in a new, single line of business, in an unproven market. These uncertainties include:

·  our ability to design, engineer and manufacture products having the technological features planned for the video phone product line in a cost efficient manner;

·  our ability to enter into appropriate distribution relationships for the product;

·  our ability to demonstrate the benefits of our products and services to end users;

·  our ability to offer our products at competitive prices;

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·  consumer and business demand for, and acceptance of, our video phone products;

·  our unproven and evolving business model;

·  the entrance of significant competitors into the video phone marketplace;

·  the introduction of newer video phone technology rendering our technology obsolete;

·  unfavorable economic conditions in the technology industry;

·  a changing regulatory environment;

·  decreased capital spending on technology due to adverse economic conditions; and

·  global economic conditions.

Our video phone technology and products remain subject to significant uncertainty.

Our video phone technology and products are in the early commercialization stage and have not been proven over an extended period of time. The market for products related to video telephony is characterized by uncertain user and customer requirements, and the emergence of new communications standards and practices. Each of these characteristics could impact our video phone products, intellectual property and system designs. The successful development of our products is subject to the risks that:

·  our product is found to be ineffective for the intended purposes;

·  our product is uneconomical to manufacture or market or does not achieve broad market acceptance; and

·  third parties hold proprietary rights that preclude us from marketing the product.

Significant undetected errors or delays in new products or releases may affect market acceptance of our product. There can be no assurance that, despite our testing, errors will not be found in the initial product or subsequent releases after the commencement of commercial shipments, resulting in loss of customers or failure to achieve market acceptance.  In addition, our video phone technology and product will need to be compatible with a broad array of disparate technologies in order to be interoperable with other products routinely used in HSD operations such as routers, switches, network interfaces, operating systems, security protocols and techniques, communication protocols and protocol servers, and billing systems software. Without compatibility, we may not achieve market acceptance or demand for our products within our target base of customers because our products will not operate with many of the applications the target customers currently use.

We rely on third parties to provide certain components and services for our video phone products. If our vendors fail to deliver their products in a reliable, timely and cost-efficient manner, our business will suffer.

We depend on relationships with third parties such as contract manufacturing companies, chip design companies and others who may be sole source providers of key components and services critical for the product we are developing in our video phone business. A formal relationship with Mototech has been established for the volume manufacture of Ojo.  Our agreement with Mototech allows either party to terminate the agreement with 90 days prior notice.  If Mototech or other providers of components and/or manufacturing services do not produce these components or provide their services on a timely basis, if the components or services do not meet our specifications and quality control standards, or if the components or services are otherwise flawed, we may have to delay product delivery, or recall or replace unacceptable products. In addition, such failures could damage our reputation and could adversely affect our operating results. As a result, we could lose potential customers and any revenues that we may have at that time may decline dramatically.

We rely on third parties to provide certain marketing and distribution services for our video phone products. If our vendors fail to deliver their services in an appropriate, reliable, timely and cost-efficient manner, our business will suffer.

In addition to direct sales on our web site, we rely upon a distribution organization of dealers, distributors, original equipment manufacturers, value added resellers, service providers and other resellers to market and sell our video phone products. The Company also plans to expand distribution to service providers and retailers around the world.    Given our limited experience in dealing with the retail distribution channel, there can be no assurance that we will be able to successfully and expeditiously conclude retail distribution agreements with the necessary retailers and distributors.   These resellers are able to set their own policies regarding the pricing of our products and the advertising, marketing and other promotional efforts applicable to our products.  In addition they determine how prominently our products are displayed and demonstrated.  If our resellers’ policies are not effective or if our products are not given adequate prominence, sales of our products may be negatively impacted and our operating results would be adversely affected. In this event our revenue could be significantly reduced and we could lose potential customers for our products.

We may not be able to meet our product development objectives or market expectations.

Our video phone products are complex and use “state of the art” technology.  Accordingly, our development efforts are inherently difficult to manage and keep on schedule and there can be no assurance that we will be able to meet our development objectives or market expectations. In addition to development delays, we may experience substantial cost overruns in completing development of our product. The technological feasibility for some aspects of the product that we envision is not completely

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established. The products developed by us may contain undetected flaws when introduced. There can be no assurance that, despite testing by us and by potential customers, flaws will not be found in the product, resulting in loss of or delay in market acceptance. We may be unable, for technological or other reasons, to develop and introduce products in a timely manner in response to changing customer requirements. Further, there can be no assurance that a competitor will not introduce a similar product. The introduction by a competitor of either a similar product or a superior alternative to our product, may diminish our technological advantage, render our product and technologies partially or wholly obsolete, or require substantial re-engineering of our product in order to become commercially acceptable. Our failure to maintain our product development schedules, avoid cost overruns and undetected errors or introduce a product that is superior to competing products would have a materially adverse effect on our business, financial condition and results of operations.

We may not be able to achieve competitive pricing in the marketplace.

Because video phone products are relatively new to the marketplace there is no established market pricing.  Our pricing for the Ojo video phone may be considered high for a consumer product offering. We cannot be assured that we will be able to provide competitive market pricing.

We may be subject to exchange rate fluctuations that could impact our product costs and our revenues.

Although our agreement with Mototech  Inc. (not an affiliate of General Instruments or Motorola), our contract manufacturer in Taiwan, is denominated in U.S. dollars, their material acquisition costs are subject to exchange rate changes that could impact our product costs.  Unfavorable exchange rate fluctuations could impact our cost of goods and result in increased product pricing that may hamper our ability to sell the units at a price acceptable to our customers or consumers.  Our current revenues are all denominated in US dollars. In the future, should we derive revenues that are denominated in foreign currency, our revenue would be subject to exchange rate fluctuations and could be impacted as a result.

We are highly dependent on our key personnel to manage our business, and because of competition for qualified personnel we may not be able to recruit or retain necessary personnel.

Our continued growth and success depend to a significant degree on the continued services of our senior management and other key employees and our ability to attract and retain highly skilled and experienced technical, managerial, sales and marketing personnel. We have historically been a developer of products related to ITV. Our video phone business represents an expansion into the development of HSD communications hardware and software products in which we have limited experience. In our new video phone business, we also expect to encounter new product development challenges, new customer requirements, new competitors and other new business challenges, with which our existing management may be unfamiliar. There can be no assurance that we will be successful in recruiting new personnel or in retaining existing personnel. None of our employees are subject to a long-term employment agreement. The loss of one or more key employees or our inability to attract additional qualified employees could have a material adverse effect on our business, results of operations and financial condition. In addition, we may experience increased compensation costs in order to attract and retain skilled employees.

We may not be successful in developing or maintaining strong distribution channels for our video phone products.

The success of the video phone business depends on developing strong relationships with service providers such as cable and DSL operators and other HSD communications providers and distribution channel partners who are selling services and/or consumer electronic devices to end-users. If we are not successful in creating a strong distribution channel in a timely manner, we may not gain significant sales.

We may not be able to compete successfully in the highly competitive and rapidly evolving HSD communications market.

The market for products that utilize HSD communications is still developing and there can be no assurance that our product will ever achieve market acceptance. Businesses, cable operators and other HSD network providers as well as the users of such HSD networks must be convinced to buy our video phone product. To the extent we do not achieve growth, it will be difficult for us to generate meaningful revenue or to achieve profitability.

We may not be able to protect intellectual property of our video phone business against third-party infringements or claims of infringement.

Failure to protect our intellectual property rights may result in a loss of our exclusivity or the right to use our video phone technology. We plan to rely on patent, trade secret, trademark and copyright law to protect our video phone intellectual property. Although WorldGate has been awarded patents for its distinctive design and technology and has other patents pending, our patent position is subject to complex factual and legal issues that may give rise to uncertainty as to the validity, scope and enforceability of a particular patent. Accordingly, there can be no assurance that any further patents will be issued pursuant to our current or future patent

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applications or that patents issued pursuant to such applications will not be invalidated, circumvented or challenged. Moreover, there can be no assurance that the rights granted under any such patents will provide competitive advantages to us or be adequate to safeguard and maintain our proprietary rights. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in certain foreign countries.

We also seek to protect our proprietary intellectual property, including intellectual property that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventor’s rights agreements with our current and future strategic partners and employees. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships.

Some of our video phone intellectual property includes technologies and processes that may be similar to the patented technologies and processes of third parties. If we do not adequately secure our freedom to use our video phone technology, we may have to pay others for rights to use their intellectual property, pay damages for infringement or misappropriation or be enjoined from using such intellectual property. If we are found to be infringing third-party patents, we do not know whether we will be able to obtain licenses to use such patents on acceptable terms, if at all. While we are not currently engaged in any material intellectual property disputes or litigation, we could become subject to lawsuits in which it is alleged that we have infringed the intellectual property rights of others or commence lawsuits against others who we believe are infringing upon our rights. Our involvement in intellectual property litigation could result in significant expense to us, adversely affecting the development of the challenged product or intellectual property and diverting the efforts of our technical and management personnel, whether or not such litigation concludes favorably for our Company.

Legal and regulatory developments could have adverse consequences for our business.

The legal and regulatory environment that pertains to our business is uncertain and changing rapidly. New legislation or regulations could be introduced in any country that could substantially impact our ability to launch and promote the Ojo video phone in that country. For example the FCC or a comparable regulatory authority could undertake an examination of whether to impose surcharges or additional regulations upon certain providers of Internet protocol, or IP, based communication services. The imposition of regulations on IP communications services may negatively impact our business.  Similarly the adoption of regulations prohibiting the use of certain substances commonly found in electronic components could likewise increase the costs of our products, delay product introductions and otherwise negatively impact our business.

The use of the high speed data infrastructure as a commercial marketplace is at an early stage of development.

Demand and market acceptance for recently introduced products and services over the high speed data, or HSD, infrastructure are still uncertain. We cannot predict whether customers will be willing to shift their traditional telephone activities online. The HSD infrastructure may not prove to be a viable commercial marketplace for a number of reasons, including:

·  concerns about security and varying security techniques and protocols;

·  changing and non-uniform standards;

·  Internet congestion;

·  quality of service issues;

·  inconsistent service; and

·  lack of cost-effective, high-speed access.

If the use of the HSD infrastructure as a commercial marketplace does not continue to grow, we may not be able to grow our customer base, which may prevent us from achieving profitability.

We may not have sufficient working capital to fund our continuing video phone business, and we may be unable to obtain additional capital.

The extent and timing of our future capital requirements will depend upon several factors, including the rate of market acceptance of our products, the rate and timing of product sales and the margin associated with those sales, the degree of competition for our products, and our level of expenditures, including those for product development, sales and marketing.  If our capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated.  Despite the receipt of proceeds from several private placements of our securities, we may need to seek additional third party investment in order to provide additional operating capital for our video phone business. We cannot be certain that financing from third parties will be available on acceptable terms to us or at all.  The levels of funding of early-stage companies generally by both venture funds and strategic investors have fallen dramatically in the past few years. If we cannot raise funds on acceptable terms, we may not be able to develop our products and services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have a material adverse effect on our ability to grow our business. If we are unable to secure such additional financing, we will have to curtail or suspend our business activities, we may not be able to continue to operate our business

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as a going concern and we may have to seek the protection of the bankruptcy courts. If that happens, you could lose your entire investment.

If we obtain additional financing, you may suffer significant dilution.

If we raise additional capital by issuing equity securities, our stockholders may experience severe dilution of their ownership percentage, which may adversely affect the value of our common stock.  In addition, the new equity securities may have rights, preferences or privileges senior to those of our common stock.

Our common stock is listed on the NASDAQ Over the-Counter Electronic Bulletin Board which increases the volatility of our stock and makes it harder to sell our stock.

Our common stock trades on the NASDAQ Over-the-Counter Electronic Bulletin Board Trading System (“OTCBB”).  The Bulletin Board tends to be highly illiquid, in part because there is no national quotation system by which potential investors can track the market price of shares except through information received or generated by a limited number of broker-dealers that make markets in particular stocks.  There is a greater chance of market volatility for securities that trade on the Bulletin Board as opposed to a national exchange or quotation system.  In a volatile market, you may experience wide fluctuations in the market price of our securities. These fluctuations may have an extremely negative effect on the market price of our securities and may prevent you from obtaining a market price equal to your purchase price when you attempt to sell our securities in the open market. In these situations, you may be required to either sell our securities at a market price which is lower than your purchase price, or to hold our securities for a longer period of time than you planned.  Because our common stock falls under the definition of “penny stock,” trading in our common stock may be limited because broker-dealers are required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving our common stock. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors; and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common stock might decline, and you could find it more difficult to sell your stock.

Our stock price is volatile.

The trading price for our common stock has been volatile, ranging from a sales price of $6.89 per share in the first quarter of 2005 to a sales price of $0.11 in December 2007. The trading price for our common stock during the period from January 3, 2007 to December 31, 2007 ranged from $0.11 to $1.44.  The price has changed dramatically over short periods with changes of over 50% percent in a single day. An investment in our stock is subject to such volatility and, consequently, is subject to significant risk.

A decrease in the price of our stock may trigger significant dilution of our stock

On multiple occasions we have issued shares of our common and preferred stock, issued convertible debentures, as well as issued warrants and additional rights to acquire our common stock, to certain institutional investors in private placement transactions.  The various agreements providing for these private placement transactions include numerous anti-dilution provisions which have in the past, and may in the future continue to be, triggered by a reduction in our stock price and which could trigger the repricing of outstanding shares and warrants and issuance of additional shares or warrants of our stock.

Prior offerings of our common stock may have an adverse impact on the market value of our stock.

On multiple occasions we have issued shares of our common stock as part of various private placements to certain institutional investors and as part of these transactions we filed multiple registration statements, which provided for the sale or distribution of these shares by these institutional investors. When these investors sell their shares we will not receive any proceeds from the sales. The sale of these blocks of stock, or even the possibility of their sale, may adversely affect the trading market for our common stock and reduce the price available in that market.

In connection with these private placements, we also issued convertible debentures and warrants to purchase shares of common stock. The existence of such rights to acquire common stock at variable as well as fixed prices may prove a hindrance to our efforts to raise future equity and debt funding, and the exercise of such rights will dilute the percentage ownership interest of our stockholders and may dilute the value of their ownership. The possible future sale of shares issuable on the exercise of outstanding warrants and additional investment rights could adversely affect the prevailing market price of our common stock. Further, the holders of the outstanding warrants and additional investment rights may exercise them at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us.

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The Company’s failure to comply with certain covenants contained in agreements relating to its private placement of securities may have an adverse impact on the cash available to the Company.

On multiple occasions we have issued shares of our common and preferred stock, issued convertible debentures, as well as issued warrants and additional rights to acquire our common stock, to certain institutional investors in private placement transactions.  The various agreements providing for these private placement transactions included numerous provisions intended to protect such institutional investors.  For example, the Company is required to continually maintain effective registration statements permitting the investors to sell their shares of common stock.  Failure to comply with such requirements may result in damages to the investors and result in obligations to make cash payments to the investors.  The investors may also be entitled to receive more shares than originally allocated in the event the Company subsequently issues shares to other investors at a lower valuation than that afforded to the investors.  In addition, the investors may be entitled to receive cash payments instead of shares upon the redemption of certain securities in the event that certain defined events occur including a lapse in the registration statement, being de-listed on certain specified exchanges, trading in the Company’s stock is suspended, or a change in control occurs with respect to the Company.

The Company has received notices from YA Global Investments, L.P. (YA Global), holder of the Company’s convertible debentures, claiming various alleged defaults of the terms of the debentures.  The Company has notified YA Global that it disputes these claims and whether they constitute a continuing event of default under the debentures. The Company is working with YA Global in an effort to settle their disputes regarding the claimed defaults. There is no certainty that these claims can be resolved, and, if they are not, it may have an adverse effect on the continuing operations of the Company.

Our board of directors’ right to authorize additional shares of preferred stock could adversely impact the rights of holders of our common stock.

Our board of directors currently has the right to designate and authorize the issuance of one or more series of our preferred stock with such voting, dividend and other rights as our directors may determine. The board of directors can designate new series of preferred stock without the approval of the holders of our common stock. The rights of holders of our common stock may be adversely affected by the rights of any holders of shares of preferred stock that may be issued in the future, including, without limitation, dilution of the equity ownership percentage of our holders of common stock and their voting power if we issue preferred stock with voting rights. Additionally, the issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock.

Item 2. Properties.

Our corporate headquarters is located in Trevose, Pennsylvania in a leased facility consisting of approximately 42,500 square feet at an annual fee of $11.74 per square foot, with a 3% increase annually. The current lease has a five year term effective September 1, 2005. The lease is cancelable by either party with eight months notice, with a termination by the tenant including a six months termination fee. In March 2008 the parties agreed in principle to a new lease (and the cancellation of the current lease with no termination fee) for a smaller space within the current facility consisting of approximately 17,000 square feet at an annual fee of $7 per square foot. This new lease is expected to be cancelable by either party upon 90 days notice with no termination costs.

Item 3. Legal Proceedings.

Although from time to time we may be involved in litigation as a routine matter in conducting our business, we are not currently involved in any litigation which we believe is material to our operations or balance sheet. During the first fiscal quarter 2008 we were involved in a dispute with Aequus Technologies , our largest customer.  With the exception of certain non-recurring engineering, or NRE, in the amount of approximately $1.3M, which remains the subject of agreed arbitration between the parties. This dispute was settled as part of the March 31, 2008 agreement with this customer as further discussed in Item 6 of this annual report.  When we are involved in disputes or other legal proceedings we comply with the requirements of currently prevailing accounting standards and provide for accruals where a liability is probable and a reasonable estimate can be made as to the probable amount of such liability.

Item 4. Submission of Matters to a Vote of Security Holders.

At our annual meeting of stockholders held on December 13, 2007, our stockholders elected seven members to our Board of Directors.  Those elected to the Board were Hal M. Krisbergh, Steven C. Davidson, Clarence L. Irving, Jr., Martin Jaffe, Jeff Morris, David Tomasello and Lemuel Tarshis.

The results of the voting for each member of our Board of Directors are as follows:

Nominee	FOR	WITHHELD
Steven C. Davidson	33,129,527	3,436,682
Martin Jaffe	33,135,874	3,430,335
Clarence L. Irving, Jr.	33,676,955	2,889,254

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Hal M. Krisbergh	33,490,097	3,076,112
Jeff Morris	33,568,953	2,997,256
Lemuel Tarshis	34,338,710	2,227,499
David Tomasello	33,271,816	3,294,393

Our stockholders also approved the proposed amendment of the Company’s Certificate of Incorporation to increase the authorized shares of the Company’s common stock from 120 million to 200 million with a vote as follows:

FOR:	27,796,017
AGAINST:	8,599,813
ABSTENTIONS:	170,379

Additionally our stockholders rejected the proposed plan of recapitalization that would have, upon implementation by the Company at the discretion of the Company’s board of directors, resulted in the amendment of our Certificate of Incorporation to effect up to a one-for-ten reverse stock split of the Company’s common stock, with a vote as follows:

FOR:	10,216,926
AGAINST:	2,567,003
ABSTENTIONS:	119,043
BROKER NON-VOTES:	23,663,238

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Price Range of Common Stock

Our common stock, $0.01 par value, is traded on the OTCBB under the symbol “WGAT.OB.”  The following table shows the high and low sales price as reported by the OTCBB, for each quarter of 2006 and 2007.

	High		Low
Year Ended December 31, 2006
First Quarter	$	2.30	$	1.06
Second Quarter	2.16		1.14
Third Quarter	1.85		1.08
Fourth Quarter	1.60		1.14

Year Ended December 31, 2007
First Quarter	$	1.44	$	0.64
Second Quarter	0.92		0.45
Third Quarter	0.56		0.33
Fourth Quarter	0.40		0.11

As of April 6, 2008, we had 341 holders of record of our common stock.

Dividends

We have never paid or declared any cash dividends on our common stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently expect to retain future earnings, if any, to finance the growth and development of our business. The terms of our currently issued preferred stock impose a preference to the payment of any dividend on our common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of December 31, 2007 regarding securities authorized for issuance under the Company’s equity compensation plans:

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Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average  exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders (1)	6,808,342	$	1.37	1,197,029	(1)
Equity compensation plans not approved by security holders (2)	—	—		—
Total	6,808,342	1.37		1,197,029	(1)

(1)  2003 Equity Incentive Plan.  The 2003 Equity Plan has an automatic annual increase in the number of shares reserved for issuance in an amount equal to the lesser of 4% of the then outstanding shares of our Common Stock or 1,000,000 shares.

(2)  The Company does not maintain any equity compensation plans that have not been approved by its stockholders.

In 2003 the Company adopted an equity incentive plan (the “Equity Plan”) which was approved by stockholders in November, 2004.  The principal features of our Equity Plan are summarized below, but the summary is qualified in its entirety by reference to our Equity Plan, which was filed as exhibit 10.6 to the Company’s Proxy Statement to shareholders filed September 3, 2004.

This plan provides for the grant of equity awards to such officers, other employees, consultants and directors of WorldGate and our affiliates as the Compensation and Stock Option Committee may determine from time to time. Although various types of awards are available under the Equity Plan, including non-qualified and incentive stock options, restricted stock and performance based awards, currently only stock options and performance based stock have been granted.  Stock options vest in equal installments over a four-year period, and expire ten years following the date of grant, subject to acceleration in the event of some changes of control of WorldGate, and earlier termination upon cessation of employment. In 2007 the Company awarded 1,151,000 shares of restricted stock subject to vesting under certain performance criteria of which 250,000 were forfeited. Performance based shares vesting criteria are as follows: 10% of the shares vest upon achieving each of a 10%, 20%, 30% 40% and 50% increase in Company total gross revenue in a quarter over its third quarter 2007 total gross revenue shown on its statement of operations as reported in its SEC filings and 25% of the shares vest upon the Company achieving each of (1) a quarterly operating cash break even (defined as zero or positive “net cash provided by operations” consistent with or as reported on the “Consolidated Statement  of Cash Flows” in the financial statements filed with SEC) and (2) a 10% net income as a percent of revenue. The Equity Plan has an automatic annual increase in the number of shares reserved for issuance in an amount equal to the lesser of 4% of the then outstanding shares of our Common Stock or 1,000,000 shares.

To administer our Equity Plan, the Compensation and Stock Option Committee must consist of at least two members of our board of directors, each of whom is a “non-employee director” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, or the Exchange Act and, with respect to awards that are intended to constitute performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, an “outside director” for the purposes of Section 162(m). The Compensation and Stock Option Committee, among other things, interprets our Equity Plan, selects award recipients, determines the type of awards to be granted to such recipients and determines the number of shares subject to each award and the terms and conditions thereof. The Compensation and Stock Option Committee may also determine if or when the exercise price of an option may be paid in the form of shares of our common stock and the extent to which shares or other amounts payable with respect to an award can be deferred by the participant. Our board of directors may amend or modify our Equity Plan at any time. In addition, our board of directors is also authorized to adopt, alter and repeal any rules relating to the administration of our Equity Plan and to rescind the authority of the Compensation and Stock Option Committee and thereafter directly administer our Equity Plan. However, subject to certain exceptions, no amendment or modification will impair the rights and obligations of a participant with respect to an award unless the participant consents to that amendment or modification.

Our Equity Plan will continue in effect until terminated by us in accordance with its terms, although incentive stock options may not be granted more than 10 years after the adoption of our Equity Plan.

Item 6. Selected Financial Data.

Not required

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Dollar amounts contained in this Item 7 are in thousands, except per share amounts)

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

We may from time to time make written or oral forward-looking statements, including those contained in the following Management’s Discussion and Analysis of Financial Condition and Results of Operations.  The words “estimate,” “project,” “believe,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  In order to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are hereby identifying certain important factors that could cause our actual results, performance or achievement to differ materially from those that may be contained in or implied by any forward-looking statement made by or on our behalf.  The factors, individually or in the aggregate, that could cause such forward-looking statements not to be realized include, without limitation, the following: (1) difficulty in developing and implementing marketing and business plans, (2) industry competition factors and other uncertainty that a market for our products will develop, (3) challenges associated with distribution channels, including both the retail distribution channel and  HSD operators (e.g., uncertainty that they will offer our products, inability to predict the manner in which they will market and price our products and existence of potential conflicts of interests and contractual limitations impeding their ability to offer our products), (4) continued losses, (5) difficulty or inability to raise additional financing on terms acceptable to us, (6) departure of one or more key persons, (7) default under, or acceleration of the maturity of, our convertible debentures,  (8) changes in regulatory requirements, (9) delisting of our common stock from the OTCBB and (10) other risks identified in our filings with the Securities and Exchange Commission.  We caution you that the foregoing list of important factors is not intended to be, and is not, exhaustive.  We do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf.

Results of Operations:

General

Our video phone business has not produced significant revenues to date.  The extent and timing of future revenues for our business depends on several factors, including the rate of market acceptance of our products and the degree of competition from similar products.  We cannot predict to what extent our video phone product will produce revenues, or when, or if, we will reach profitability.

 On April 28, 2004, we entered into a multi-year agreement with General Instrument for the worldwide distribution of the Ojo personal video phone. This agreement provided for General Instrument to be WorldGate’s exclusive distributor of its broadband video phone products and for WorldGate to be General Instrument’s exclusive supplier of its broadband video phone products.  On February 17, 2006, we mutually agreed with General Instrument to end this agreement which terminated exclusivity for both parties. In addition to its current role for development and manufacture of Ojo, WorldGate assumed direct responsibility and control for the advertising, marketing, and distribution of its products.

As part of ending the development and distribution agreement, General Instrument has agreed to certain restrictions on its development of a stand-alone video phone product which has as a primary function of making or receipt of video phone calls over a broadband network.  Such restrictions ended in January 2007. For more details, refer to Note 2 of the accompanying consolidated financial statements for the year ended December 31, 2007.

On May 9, 2006 the Company entered into a multiyear agreement with Aequus to purchase Ojo video phones through its wholly owned subsidiary Snap Telecommunications Inc., (“Snap!VRS”), a provider of VRS and VRI services for the deaf and hard of hearing.   On June 20, 2007 the Company announced it had expanded its relationship with Aequus and Snap!VRS modifying their earlier agreement to allow for the parties to work collaboratively to identify the most desired Ojo features and capabilities that will provide the best video phone experience for the VRS user community and that would enable Ojo to be the preferred VRS video phone. As part of the modified agreement the Company agreed to contract to provide development and engineering resources to accomplish these features and capabilities and in addition, as a result of Snap!VRS’s utilization of the Ojo network, Snap!VRS also placed a purchase order for 10,000 Ojos to begin to fill the current Snap!VRS order backlog.  In the later part of the third quarter of 2007 product shipments were commenced to Snap!VRS’ VRS customers.

On February 4, 2008, the Company issued a current report on Form 8-K indicating that it was in a dispute with Aequus over the payment of significant monies which the Company believed were owed to it.  The customer’s refusal to pay such monies had contributed to a shortfall in the operating cash available to the Company to continue operations, and accordingly, on January 30, 2008, the Company shut down its operations.  The Form 8K further indicated that this was a first step to winding down its business, which would occur if the Company was not able to secure payment of the monies believed to be owed to by the customer, and/or new financing.

On March 31, 2008, the Company entered into a new agreement with Aequus and Snap!VRS.  This new agreement, inter

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alia, provides for the (i) resolution of a dispute with Aequus regarding amounts the Company claimed were owed to the Company by Aequus and the termination by the Company of service to Aequus, (ii) payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, (iii) agreement to arbitrate approximately $1.4 million additional dollars claimed by the Company to be owed by Aequus and (iv) purchase of an additional $1.5 million of video phones by Aequus (the “Aequus Transaction’).  As a result of this new agreement Aequus is planning to build a new data center, with support and training provided by the Company, and upon completion, directly operating a video phone service for its customers. In anticipation of completing the contract with Aequus the Company resumed operations on March 11, 2008.

As of December 31, 2007, on a consolidated basis, we had approximately 39 full-time employees. Since December 31, 2007  and until April 4, 2008 the Company reduced its staffing by an additional 14 employees to 25 employees.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period. Actual results could differ from those estimates.

Our significant accounting policies are described in Note 2 to the accompanying consolidated financial statements for the year ended December 31, 2007.  Judgments and estimates of uncertainties are required in applying our accounting policies in many areas.  Following are some of the areas requiring significant judgments and estimates: revenue recognition, accounts receivable, inventories, cash flow and valuation assumptions in performing asset impairment tests of long-lived assets, income taxes, stock based compensation, value of redeemable preferred stock, convertible debentures, related warrants and conversion options.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, the collectibility is reasonably assured, and the delivery and acceptance of the equipment has occurred or services have been rendered.  Management exercises judgment in evaluating these factors in light of the terms and conditions of its customer contracts and other existing facts and circumstances to determine appropriate revenue recognition. Due to our limited commercial sales history, our ability to evaluate the collectibility of customer accounts requires significant judgment. The Company evaluates its equipment customer and service customers’ accounts for collectibility at the date of sale and on an ongoing basis.

Revenues are also offset by a reserve for any price refunds and consumer rebates consistent with the EITF Issue 01-9, “Accounting for Consideration Given by a Vendor to a Customer.”

As part of ending our agreement with General Instrument, and in anticipation of WorldGate inventory requirements as a result of taking full responsibility for product distribution, we negotiated the right to buy back about two-thirds of the units sold to General Instrument, valued at approximately $2,765 (based upon the original sales price to General Instrument), for approximately $1,064. This is less than half of what it would have cost us to purchase the same inventory from our manufacturing sources.  As a result we recorded a reserve for returns and reduced revenue in the amount of approximately $2,310, during the fourth quarter of 2005.

In addition, the Company has recorded no revenue for units shipped to General Instrument in the first quarter 2006 and for the year ended December 31, 2006 the Company recorded a gain on termination of this agreement of approximately $1,843 as a result of the lower purchase price of the inventory repurchased from General Instrument ($1,393, net of the cost of rework for rebranding the product and the adjustment of the inventory to its current replacement value) and reversal of the product refund program reserve ($212) as well as an adjustment of the warranty reserve for products repurchased ($233), both of which resulted from termination of the Company’s agreement with General Instrument.

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During the twelve months ended December 31, 2007 we shipped approximately 400 units with a sales value of approximately $128 to customers subject to a right of return should the units not be sold through to their customer. Revenue and cost of goods sold of $16 for these units was deferred as of December 31, 2007 in accordance with SFAS 48 “Revenue Recognition when a Right of Return Exists.”

In the third quarter of 2007, the Company began to ship its video phone product to its VRS customer (See Note 2).  As part of its June 2007 agreement with this customer, the Company began to recognize product revenue at the time of shipment of its video phone. In addition, the Company also began to receive a service fee revenues based on a percentage of the fees earned by Aequus. The Company recognizes this service fee revenue upon confirmation from the VRS customer of the fees they have earned and for which the customer has received service. The Company also receives service fee revenues from end consumers which is recognized after the service has been performed. In addition, the Company had provided non-recurring engineering (“NRE”) services to Aequus valued at $1,354 for the year ended December 31, 2007. These services are subject to agreed arbitration between the parties. As such the Company did not recognize revenues related to these NRE services during the year ended December 31, 2007 but rather will treat similar to a gain contingency.

Accounts Receivable

The Company records accounts receivable at the invoiced amount.  Management reviews the receivable balances on a monthly basis.  Management analyzes collection trends, payment patterns and general credit worthiness when evaluating collectibility and requires letters of credit whenever deemed necessary.  Additionally, the Company may establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends related to past losses and other relevant information.  Account balances would be charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  As of December 31, 2006 and 2007, the Company did not have an allowance for doubtful accounts or any off-balance sheet credit exposure related to its customers.  At December 31, 2007, approximately 82% of accounts receivable was concentrated with one domestic customer. At December 31, 2006, approximately 95% of accounts receivable were concentrated with five customers.  The Company had two distribution customers that represented 8% of accounts receivable, and had two major international telecommunications customers that represented 82% of accounts receivable at December 31, 2006.  Trade accounts receivable at December 31, 2006 and 2007 were $1,005 and $166, respectively.  Bad debt expense was recorded for the twelve months ended December 31, 2006 and 2007 of $0 and $19, respectively.

Inventory.

Our inventory consists primarily of finished goods equipment to be sold to customers. The cost is determined on First-in, First-out (“FIFO”) cost basis. A periodic review of inventory quantities on hand is performed in order to determine and record a provision for excess and obsolete inventories. Factors related to current inventories such as technological obsolescence and market conditions are analyzed to determine estimated net realizable values. A provision is recorded to reduce the cost of inventories to the estimated net realizable values. To motivate trials and sales of its Ojo product, the Company has historically subsidized, and plans in the future to continue to subsidize, certain of its product sales to customers that result in sales of inventory below cost.  In accordance with Accounting Research Bulletin No. 43, the Company reflects such inventory at the lower of cost or market and has reduced its inventory at December 31, 2007 and 2006 by $293 and $97, respectively,  to reflect such valuation.  Any significant unanticipated changes in the factors noted above could have an impact on the value of the Company’s inventory and its reported operating results.   Our inventory balance was $1,057 and $1,600 at December 31, 2007 and 2006, respectively. In 2006, the Company’s inventory was reduced by $585 to their estimated net realizable values.

Long-Lived Assets.

Our long-lived assets consist of property and equipment. These long-lived assets are recorded at cost and are depreciated or amortized using the straight-line method over their estimated useful lives. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such assets are separately identifiable and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined by using the anticipated cash flows discounted at a rate commensurate with the risk involved. If useful life estimates or anticipated cash flows change in the future, we may be required to record an impairment charge.

Accounting for Income Taxes.

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation of property and equipment and valuation of inventories, for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than not that we will not recover the deferred tax asset, we must establish valuation allowances. To the extent we establish valuation

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allowances or increase the allowances in a period, we must include an expense within the tax provision in the statement of operations.

We have a full valuation allowance against the net deferred tax asset of $103,537 as of December 31, 2007, due to our lack of earnings history and the uncertainty as to the realizability of the asset. In the future, if sufficient evidence of our ability to generate sufficient future taxable income becomes apparent, we would be required to reduce our valuation allowance, resulting in a benefit from income tax in the consolidated statements of operations.

The Company has adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”(“FIN 48”), on January 1, 2007.  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.  The Company’s ability to utilize its net operating loss carryforwards and credit carryforwards may be subject to annual limitations as a result of prior or future changes in ownership and tax law as defined under Section 382 of the Internal Revenue Code of 1986. Such limitations are based on the market value of the Company at the time of ownership change multiplied by the long-term exempt rate supplied by the Internal Revenue Service. As part of this assessment the Company completed a preliminary analysis under Section 382 of the Internal Revenue Code. Based on this analysis it was determined that it was more likely than not that a change of control pursuant to Section 382 has not occurred. Future issuances of common stock may affect this analysis which might cause limitation in the Company’s ability to utilize net operating loss carryforwards.

Stock-Based Compensation.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment,” using the modified-prospective-transition method which requires us the recognition of compensation expense on a prospective basis.  SFAS No. 123(R) requires that all stock based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award.  Under this method, in addition to reflecting compensation for new share-based awards, expense is also recognized to reflect the remaining service period of awards that had been included in pro-forma disclosure in prior periods.  SFAS No. 123(R) also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating inflows.   As a result, the Company’s net loss before taxes for the year ended December 31, 2007 and 2006 included approximately $1,075 ($0.02 per share) and $837 ($0.02 per share), respectively, of stock based compensation.  The stock based compensation expense is included in general and administrative expense in the consolidated statements of operations.

Accounting for Preferred Shares and Related Warrants.

The Company accounted for redeemable preferred stock in accordance with EITF topic D-98 “Classification and Measurement of Redeemable Securities,” and the Redeemable Preferred Stock was recorded in the consolidated financial statements as temporary equity. Additionally, the fair value of warrants and preferred stock conversion options were recorded into the consolidated financial statements as liabilities as a result of their features that require accounting under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities, as amended” (“SFAS 133”).  At each reporting balance sheet date, an evaluation is made of these valuations and marked to market.  Fair value is determined using the Black-Scholes method.  Key assumptions used in the Black-Scholes method include actual period close stock price, applicable volatility rates, remaining contractual life and period close risk free interest rate. There was no preferred shares outstanding as of December 31, 2007. On June 23, 2007, the holder converted the remaining 166 shares of preferred stock. As a result only the warrants are still accounted for under SFAS 133.

Accounting for Secured Convertible Debentures and Related Warrants.

The Company accounted for conversion options embedded in convertible notes in accordance with SFAS No. 133 “and EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”).  SFAS 133 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments in accordance with EITF 00-19.   EITF 00-19 states that if the conversion option requires net cash settlement in the event of circumstances that are not solely within the Company’s control that they should be classified as a liability embedded measured at fair value on the balance sheet.

On May 18, 2007, the Company and the investor of the August 11, 2006 transaction amended the terms of the secured convertible debentures to remove the investor’s ability, upon conversion of the debentures, to demand cash in lieu of shares of common stock, and to clarify that the Company may issue restrictive shares if there is no effective registration statement at the time of conversion. The terms of the convertible debentures were amended to permit the Company to reclassify the derivative conversion option liability embedded in the convertible debentures from debt to equity.

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The Company initially accounted for the warrants issued in the August 11, 2006 convertible debenture transaction as a liability at fair value in accordance with SFAS 133 and EITF 00-19 as there were insufficient authorized shares.  On October 11, 2006, the Company received shareholder approval to increase the number of authorized shares and the warrants were reclassified to equity at fair value. Fair value is determined using the Black-Scholes method.  Key assumptions used in the Black-Scholes method include conversion price, actual period close stock price, applicable volatility rates, remaining contractual life and period close risk free interest rate.

2007 versus 2006

Revenues.

Revenues. Net revenues for the twelve months ended December 31, 2007 and 2006 were $3,445 and $2,776, respectively.  This increase of $669, or 24%, primarily reflects the initial product and service revenues from Aequus which started in the third quarter of 2007. Revenue from increased product sales was $54 while service revenues increased by $440, primarily the result of $250 of initial service revenues realized in 2007 from our VRS customer.   In addition, in 2007 the Company realized $175 of revenues from certain engineering development work for our VRS customer.  Revenues during the twelve months ended December 31, 2006 reflects the product inventory build up by our former distributor.  During the twelve months ended December 31, 2007 we shipped approximately 400 units to customers subject to a right of return.  Revenue and cost of sales of $16 was deferred as of December 31, 2007 in accordance with SFAS 48 “Revenue Recognition when a Right of Return Exists.”

On March 13, 2006, as an incentive to promote delivery of the units, the Company announced a special price protection program to certain retailers and a rebate program to consumers. These incentive programs began on April 1, 2006 and terminated at the end of the second quarter of 2006. Consistent with the EITF Issue 01-9, “Accounting for Consideration Given by a Vendor to a Customer,” we offset our revenues for the twelve months ended December 31, 2006 by $31 for the price protection program and  $22 for the consumer rebate program.    During the twelve months ended December 31, 2006, we provided forward pricing discounts to retailers and certain service operator sales in order to help promote distribution and consumer purchases.  In the case of retail sales, the Company expects that recurring revenues from service fees will offset any loss on the sale of the product.  This forward pricing, coupled with inventory adjustments for obsolescence and lower market valuations, resulted in a net margin loss in 2006 of $593. There were no special price protection programs or forward pricing discounts to retailers and certain service operator sales during the twelve months ended December 31, 2007.

As part of ending our agreement with General Instrument, and in anticipation of our inventory requirements as a result of taking full responsibility for product distribution, we negotiated the right to buy back about two-thirds of the units sold to General Instrument, valued at approximately $2,765 (based upon the original sales price to General Instrument), for approximately $1,064. This is less than half of what it would cost us to purchase the same inventory from its manufacturing sources.  As a result we recorded a reserve for returns and reduced revenue in the amount of approximately $2,310 during the fourth quarter of 2005. In addition we recorded no revenue for units shipped to General Instrument in the twelve months ended December 31, 2006 and recorded a gain on termination of this agreement of approximately $1,843 during the twelve months ended December 31, 2006 as a result of the lower purchase price of this inventory (net of the cost of rework for rebranding the product).

Costs and Expenses.

Cost of Revenues. The cost of revenues, consisting of product and delivery costs relating to the delivery of video phones, was $3,046 and $3,369, respectively, for the twelve months ended December 31, 2007 and 2006.  Included in these costs for 2007 and 2006 were inventory adjustments for lower of cost or market valuations of $293 and $585, respectively. In 2007, costs for freight, warranty, royalty and other costs related to the product further increased the cost of revenues by $242 for the twelve months ended December 31, 2007.   For the year ended December 31, 2006, the charge for the lower of cost or market adjustments, freight charges, product rework expenses, reserves for warranty and other costs related to the product further increased the cost of revenues by $234.

Engineering and Development.  Engineering and development expenses primarily consist of compensation, and the cost of design, programming, testing, documentation and support of the Company’s video phone product.  Engineering and development costs were $5,315 for the year ended December 31, 2007, compared with $6,238 for year ended December 31, 2006.    This decrease of $923, or 15%, reflects the Company’s reduced engineering staff, and related costs, in the third and fourth quarters of 2007 related to the Company’s efforts to reduce its expenses.

Sales and Marketing.  Sales and marketing expenses consist primarily of compensation (which includes compensation to manufacturer’s representatives and distributors), and attendance at conferences and trade shows, travel costs, advertising, promotions and other marketing programs (which includes expenditures for co-op advertising and new market development) related to the continued introduction of the Company’s video phone product.  Sales and marketing costs were $2,479 for the twelve months ended December 31, 2007, compared with $3,395 for the twelve months ended December 31, 2006.  This decrease of $916, or 27%, for the twelve months ended December 31, 2007, when compared to the same period in 2006, reflects primarily a decrease in consumer

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marketing promotional expenditures, associated with the Company’s distribution and marketing support of its video phone product and staffing reductions and suspension of a portion or all salaries for a time period in the third and fourth quarters of 2007 for certain senior marketing  management partially offset by a $300 non-cash stock based consulting fee associated with the marketing of our video phone product, issued in the form of 375,737 shares of common stock ($267) and 100,000 common stock options($33).

General and Administrative.  General and administrative expenses consist primarily of expenditures for administration, office and facility operations, finance and general management activities, including legal, accounting and professional fees.  General and administrative expenses were $5,260 for the twelve months ended December 31, 2007, compared with $6,983 for the twelve months ended December 31, 2006.  This decrease of $1,723, or 25%, is primarily attributable to reduced staffing and suspension of a portion or all salaries for a time period in the third and fourth quarters of 2007 for certain senior administrative management.  In addition, the decrease for the twelve months ended December 31, 2007 also reflects a reduction of $1,114 of accrued penalties compared to the twelve months ended December 31, 2006 which was related to the private placement in August 2005 (for more details, refer to Note 2 of the accompanying consolidated financial statements for the twelve months ended December 31, 2007).

Interest and Other Income and Interest Expense.  Interest and other income consist of interest earned on cash and cash equivalents.  The interest and other income of $178 for the twelve months ended December 31,2007 decreased by $283 versus the twelve months ended December 31, 2006  This decrease is related to  reduced interest income earned on cash and cash equivalents.  During the twelve months ended December 31, 2007 and 2006, the Company earned interest on average cash balances of approximately $3,670 and $13,423, respectively.  Interest expense for the year ended December 31, 2007 was $466 compared to $194 for 2006.  This increase of $272, or 140%, primarily reflected accrued interest on the convertible debentures ($464) issued on August 11, 2006 and October 13, 2006 (see Note 2 of the accompanying consolidated financial statements for the year ended December 31, 2007).

Gain on trademark assignment.  In July, 2007, the Company sold its “Shadow” trademark to T-Mobile USA, Inc. and received $500.  In addition, the Company obtained a license to continue its use of the mark until July 7, 2009.  Shadow is the non-registered trademark currently used with respect to the Company’s Ojo PVP 900.  The Company has retained all ownership in Ojo, which is its primary registered mark.

Non Cash Change in Fair Value of Derivative Warrants and Conversion Options. For the twelve months ended December 31, 2007 the non cash change in fair value of derivative warrants and conversion options was a gain of $2,432.  For the twelve months ended December 31, 2006, the non cash change in fair value of derivative warrants and conversion options was a loss of $435.  These marked to market adjustments are primarily a result of changes in our common stock price at each reporting period related to our June 24, 2004 private placement of our Series A Convertible Preferred Stock and Warrants and our August 11, 2006 and October 13, 2006 private placements of secured Convertible Debentures and Warrants.  Future mark to market adjustments will relate only to the derivative warrant liability.

Amortization of Debt Discount.  For the twelve months ended December 31, 2007 and 2006 the amortization of the debt discount was $4,126 and $1,354 respectively, relating to the August 11, 2006 and October 13, 2006 private placements of secured convertible debentures.  This increase of $2,772, or 205%, reflects an increase of $2,299 in converted debt in 2007 compared to $1,321 in 2006.  The unamortized discount recognized upon conversion for the year 2007 was $3,212, compared to $1,350 for the year 2006.  The amortization of discount not related to debt conversions was $914 and $4, respectively, for the years 2007 and 2006. This discount for the August 11, 2006 convertible debenture issuance was initially recorded as $4,446, and the discount for the October 13, 2006 convertible debenture issuance was initially recorded as $3,979.  These discounts are being amortized using the effective interest rate method over the three year term of the convertible debentures (see Note 2 of the accompanying consolidated financial statements for the twelve months ended December 31, 2007).  .

Income Taxes.  We have incurred net operating losses since inception and accordingly have had no current income tax provision and have not recorded any income tax benefit for those losses.

Liquidity and Capital Resources.

As of December 31, 2007, our primary source of liquidity consisted of cash and cash equivalents that are highly liquid, are of high quality investment grade and have original maturities of less than three months.

At December 31, 2007, we had cash and cash equivalents of $1,081 as compared to cash and equivalents of $10,067 at December 31, 2006.  Net cash used in operating activities was $10,378 for the twelve months ended December 31, 2007, as compared to $16,154 used for the same period in 2006. This decrease of $5,776, or 36%, in net cash used in operating activities was primarily attributable to our decrease in expenditures during the twelve months ended December 31, 2007 compared to the same period in 2006, related primarily to decreases in staffing and suspension of a portion or all salaries for a time period in the third and fourth quarters of 2007 for certain senior management of approximately $710, decreases in product development expenditures of $485 and reduced advertising expenditures of $748.  In addition, reductions in accounts receivable of $925 and inventory of $1,179 contributed to the

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decrease of cash used in operations. Bad debt expense was recorded for the twelve months ended December 31, 2007 and 2006 of $19 and $0,

Cash used for investing activities was primarily a result of investments in equipment for product development and manufacture as well as for certain office equipment and leasehold improvements.   For the year ended December 31, 2007 and 2006, such investments were $132 and $410, respectively.  In addition, the Company received $500 for the assignment of certain trademarks in the year ended December 31, 2007..

Cash provided by financing activities is primarily a result of various private placements of our Company’s securities, the issuance of convertible debt,  the exercise of warrants, the exercise of non-executive employees’ and prior employees’ stock options and the sale of a certain Company  trademark during the twelve months ended December 31, 2007.  Total cash provided by financing activities was $1,024 for the year ended December 31, 2007, primarily related to the private equity placement of $1,000 of our Company’s securities, compared to $10,354 during the same period in 2006 primarily related to the issuance of convertible debt respectively.

Operations and Liquidity.

As shown in the accompanying consolidated financial statements, the Company has incurred recurring net losses and has an accumulated deficit of $261,575, stockholder’s deficiency of $1,462 and a working capital deficit of $2,380 as of December 31, 2007.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Our short term cash requirements and obligations include, inventory, accounts payable and capital expenditures from continuing operations, and operating expenses.

Long term cash requirement obligations are primarily related to convertible debenture issued on August 11 and October 13, 2006 and which mature on August 11 and October 13, 2009, respectively. The convertible debentures have an interest rate of 6% per annum and can be convertible into the common stock of the Company at the holder’s option.  As of December 31, 2007 the convertible debentures have an outstanding principle balance of $6,001 (before discount) and accrued interest of $658.

On February 5, 2008, February 13, 2008, February 15, 2008, and April 8, 2008 the Company received notices from YA Global, holder of the Company’s convertible debentures, claiming that the Company was in default of the terms of the debentures for stating its intent to wind down its business, failure to maintain current financial statements in the registration statement relating to the sale of the Company’s common stock issuable upon conversion of one of those debentures, failure to comply with a covenant to their satisfaction that provided for the disclosure of information they considered material,  and entering into the agreement with Aequus, and as a result YA Global was exercising its right to accelerate payment of the full principal amount of the debentures. While the registration statement was not effective as of December 31, 2007, the underlying alleged default with respect to the registration statement was in any event cured by the amendments to Rule 144 that became effective on February 15, 2008, obviating the need to maintain that registration statement. The Company has notified YA Global that it disputes these claims and whether they constitute a continuing event of default under the debentures. The Company has also notified YA Global that their right to accelerate payment is also disputed. The Company is working with YA Global in an effort to settle their disputes regarding the claimed defaults and acceleration. Although the Company disputes YA Global’s claims of default, and does not believe YA Global has any basis to accelerate payments on the debenture, the Company has reclassified the YA convertible debenture to a current liability on the accompanying consolidated financial statements, solely in light of the existence of the alleged claims.

To date, we have funded operations primarily through multiple private sales of equity securities, through the issuance of convertible debentures and through an initial public offering of common stock in April 1999. The financing secured on August 11, 2006 (see Note 2 of the accompanying consolidated financial statements for the year ended December 31, 2007) has added long term debt to the balance sheet and we have pledged substantially all of our assets as collateral.  We continue to evaluate the possibilities to obtain further additional financing through public or private equity or debt offerings, bank debt financing, asset securitizations, or from other sources. In addition, during 2007 the Company has significantly cut its operating expenses, including a suspension of a portion or all salaries for a time period in the third and fourth quarters of 2007 for certain senior management of the Company.  Although no assurances can be made, the Company remains hopeful that sufficient working capital will be obtained.  If the Company is unable to obtain sufficient funds the Company may suspend operations which could have a material adverse impact on its business prospects.

Our ability to generate cash is dependent upon the sale of our Ojo product and on obtaining cash through capital markets.  We began generating revenue from commercial shipment of our Ojo product in April 2005 and we expect revenues to increase as the product continues to roll out to the marketplace. Depending on the ramp up of sales and the achievable margins, the increased level of sales activity should have a positive impact on our cash flows from operations, and could support our ability to meet our cash requirements in the long term. Given that our video phone business involves the development of a new product line with no market penetration, in an underdeveloped market sector, no assurances can be given that sufficient sales, if any, will materialize. The lack of

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success of our sales efforts could also have an adverse ability to raise additional financing.

The Company began generating revenue from commercial shipment of the Ojo product in April 2005.  Initially all product sales were conducted through General Instrument, the Company’s exclusive distributor, and all revenue was based upon sales of the Company’s products to General Instrument for their distribution to resellers.  In February 2006, its distributor relationship with General Instrument ended and the Company began to directly distribute and sell its products. Since the completion of the transition activities from General Instrument, the Company has been directly responsible for all of the sales and marketing efforts related to its Ojo products.   Although the Company was able to increase the number of distribution relationships with service providers and retailers carrying its products, incremental sales remained low, at least in part due to the nature of the product as one of the first entrants in a new product category, namely, personal video phones.  In the later part of the third quarter of 2007product shipments commenced to VRS customers.  VRS is a form of Telecommunications Relay Service (TRS) that enables persons with hearing disabilities who use American Sign Language (ASL) to communicate with voice telephone users through video equipment, rather than through typed text.  The Company’s Ojo video phone provides this equipment link for the hard-of-hearing VRS user with a TRS operator (called a Communications Assistant, or CA) so that the VRS user and the CA can see and communicate with each other using ASL in signed conversation.  VRS enables deaf and hard-of-hearing customers to improve their connection with people in their personal and business lives. This market is particularly attractive since the use of video as part of the communication link is critical, and accordingly, the video phone is a major contributing component.  Entrance to the VRS market has contributed significantly to the Company’s efforts to increase product awareness and sales.  Depending on the continued ramp up of sales, and the achievable margin, the increased level of sales and service activity should have a positive impact on the Company’s cash flows from operations.

On February 4, 2008, the Company issued a current report on Form 8K indicating that it was in a dispute with Aequus over the payment of significant monies which the Company believed were owed to it.  The customer’s refusal to pay such monies had contributed to a shortfall in the operating cash available to the Company to continue operations, and accordingly, on January 30, 2008, the Company shut down its operations.  The Form 8K further indicated that this was a first step to winding down its business, which would occur if the Company was not able to secure payment of the monies believed to be owed to by the customer, and/or new financing.

On March 31, 2008, the Company entered into a new agreement with Aequus and Snap!VRS.  This new agreement, inter alia, provides for the (i) resolution of a dispute with Aequus regarding amounts the Company claimed were owed to the Company by Aequus and the termination by the Company of service to Aequus, (ii) payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, (iii) agreement to arbitrate approximately $1.4 million additional dollars claimed by the Company to be owed by Aequus and (iv) purchase of an additional $1.5 million of video phones by Aequus (the “Aequus Transaction’).  As a result of this new agreement Aequus is planning to build a new data center, with support and training provided by the Company, and upon completion, directly operating a video phone service for its customers.

Based on management’s internal forecasts and assumptions, including, among others, the receipt of the payments per our agreement with Aequus of March 31, 2008, assumptions regarding the proceeds that would result from the arbitration with Aequus of amounts the Company claims is owed to it by Aequus and assumptions regarding our short term cash requirements and our projected revenue growth, the Company might have sufficient cash on hand to meet its obligations into 2009. However,Aequus is a new company with an unproven track recordand if Aequus is not successful, or if their activities do not lead to significant sales of its product, their operating results will be adversely affected, and their ability to pay all or any of the monies obligated per the agreement, including payment for products purchased or  the payment of any monies the Company is awarded as a result of  agreed arbitration with Aequus, may not materialize or could be significantly reduced and the Company may have insufficient capital to operate its business.

On October 4, 2007, the Company was delisted from the NASDAQ Capital Market and on October 10, 2007 was listed on the NASDAQ OTC Bulletin Board which made it subject to the SEC penny stock rules, and could adversely affect the market liquidity of the Company’s common stock and its ability to raise additional capital.

The Company continues to evaluate possibilities to obtain additional financing through public or private equity or debt offerings, bank debt financing, asset securitizations, or from other sources, to obtain such financing.  There can be no assurance that this additional financing will be available on terms acceptable to the Company, if at all. No assurances can be given that additional financing transactions can be consummated. If the Company is unable to obtain sufficient funds the Company may further reduce the size of the organization or suspend operations which could have a material adverse impact on its business prospects. In order to stretch its current working capital to provide more time for the Company to obtain additional financing, in 2007 the Company significantly cut its operating expenses, including suspension of a portion or all salaries for a time period in the third and fourth quarters of 2007 for certain senior management of the Company.  No assurances can, however, be made that any of these efforts will be successful.

Related Parties

The Company has a current multi-year agreement with Mototech , an investor, to provide the Company with engineering and

21

development support. As a result of this agreement, the Company has expensed approximately $415, and $64, respectively for the years ended December 31, 2006 and 2007.  Accounts payable to this investor amounted to $1,377 and $809 at December 31, 2006 and December 31, 2007, respectively. This agreement provides for contracted services, including hardware and software development, and the creation and development of tools to facilitate the Company’s engineering efforts. This agreement does not provide for ongoing royalties, purchase provisions, or for any requirement to provide additional funding to the Company.  Net revenues from operations recognized from Mototech were approximately $406 and $2 for the years ended December 31, 2006 and 2007, respectively.  This investor accounted for approximately 14% and 0% of the revenues for the years ended December 31, 2006 and 2007, respectively.  Accounts receivable from this investor were $1and $8, respectively, as of December 31, 2006 and December 31, 2007.

Inflation

Inflation affects the cost of raw materials, goods and services used by the Company.  In recent years, inflation has been modest.  However, high oil costs can affect the cost of all raw materials and components.  If inflation were to raise the cost of goods and services materially, we may be forced to increase the price of our products which could make the products unattractive to our customers and consumers and could limit our sales and impact on our viability.  The Company seeks to mitigate the adverse effects of inflation primarily through improved productivity, technology advancements and in the future, through scale of volume efficiencies. The Company does not believe that inflation had a material impact on its results of operations for the periods presented.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Adoption is required for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption of SFAS 157 is encouraged. The Company is currently evaluating the expected effect of SFAS No.157 on its consolidated financial statements and is currently not yet in a position to determine such effects.

In September 2006, FASB ratified Emerging Issue Task Force (“EITF”) No. 06-1, “Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the Service Provider”(“EITF 06-1”). This guidance requires the application of EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer” (“EITF 01-9”), when consideration is given to a reseller or manufacturer for benefit to the service provider’s end customer. EITF 01-9 requires the consideration given be recorded as a liability at the time of the sale of the equipment and, also, provides guidance for the classification of the expense. EITF 06-1 is effective for the first annual reporting period beginning after June 15, 2007. The Company has not yet assessed the impact of EITF 06-1 on the Company’s consolidated financial statements.

In December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”) which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of FSP EITF 00-19-02 is required for fiscal years beginning after December 15, 2006. The adoption of FSP EITF 00-19-02 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value.  The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  Adoption is required for fiscal years beginning after November 15, 2007.  Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS  No.157. The Company is currently evaluating the expected effect of SFAS No.159 on its consolidated financial statements and is not yet in a position to determine such effects.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which replaces SFAS No. 141, Business Combinations.” SFAS No. 141R establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including noncontrolling interests, contingent considerations, and certain acquired contingencies. SFAS No. 141R also requires acquisition-related transaction expenses and restructuring costs to be expensed as incurred rather than capitalized as a component of the business combination. SFAS No. 141R will be applicable prospectively to business combinations for which the acquisition date is on or after January 1, 2009. SFAS No. 141R would have an impact on accounting for businesses acquired after the effective date of this pronouncement.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An

22

Amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary (previously referred to as minority interests).  SFAS 160 also requires that a retained noncontrolling interest upon the deconsolidation of a subsidiary be initially measured at its fair value. Upon the adoption of SFAS No.160, the Company would be required to report any noncontrolling interests as a separate component of consolidated stockholders’ equity. The Company would also be required to present any net income allocable to noncontrolling interest and net income attributable to the stockholders of the Company separately in its consolidated statements of operations. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2009. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS No. 160 shall be applied prospectively. SFAS No. 160 would have an impact on the presentation and disclosure of the noncontrolling interests of any non-wholly owned business acquired in the future.

In December 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 110 (“ SAB 110”). SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14, Share-Based Payment of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of the expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007. We currently use the “simplified” method to estimate the expected term for share option grants as we do not have enough historical experience to provide a reasonable estimate. We will continue to use the “simplified” method until we have enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. SAB 110 will be effective for the Company on January 1, 2008.

In March 2008, the FASB issued FAS 161, “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133”, which amends and expands the disclosure requirements of FAS 133 to require qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement will be effective for the Company beginning on January 1, 2009. The adoption of this statement will change the disclosures related to derivative instruments held by the Company.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

Not required.

23

Item 8.  Financial Statements and Supplementary Data.

WORLDGATE COMMUNICATIONS, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Marcum & Kliegman LLP, Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2006 and 2007	F-2
Consolidated Statements of Operations for the years ended December 31, 2006, and 2007	F-3
Consolidated Statements of Stockholders’ (Deficiency) Equity for the years ended December 31, 2006 and 2007	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2007	F-5
Notes to Consolidated Financial Statements	F-6

Report of Independent Registered Public Accounting Firm

To the Audit Committee of the

Board of Directors and Stockholders

WorldGate Communications, Inc.

We have audited the accompanying consolidated balance sheets of WorldGate Communications, Inc. and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficiency), and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WorldGate Communications, Inc. and its subsidiaries as of December 31, 2007and 2006 and the results of its operations and its cash flows for the years then ended, in conformity with United States generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and had an accumulated deficit of $262 million, stockholders’ deficiency of $1.5 million and a working capital deficit of $2.4 million at December 31, 2007. The Company also experienced severe cash shortfalls, deferred payment of some of its operating expenses, and elected to shut down its operations for a period of time during 2008. Further curtailments of its operations could be necessary in the near future. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/ Marcum & Kliegman LLP

Marcum & Kliegman LLP

Melville, New York

April 16, 2008

F-1

WORLDGATE COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

	As of December 31,
	2006			2007
ASSETS
Current assets:
Cash and cash equivalents	$	10,067		$	1,081
Trade accounts receivable less allowance for doubtful accounts of $0 at December 31, 2006 and 2007	1,005			166
Other receivables	17			6
Inventory	1,600			1,057
Prepaid and other current assets	490			186
Total current assets	13,179			2,496
Property and equipment	4,494			4,627
Accumulated depreciation and amortization	(3,228		)	(3,830		)
Property and equipment, net	1,266			797
Deposits and other assets	121			121
Total assets	$	14,566		$	3,414
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable	$	1,654		$	747
Accrued expenses	1,240			2,016
Accrued compensation and benefits	48			74
Dividend payable on Preferred Stock	2			0
Detachable Warrants	997			236
Conversion option on Preferred Stock	11			0
Conversion option on convertible debt	7,044			0
Incentive sale claims liability	50			0
Warranty reserve	85			49
Deferred revenues	267			252
Convertible debenture payable (net of unamortized discount of $4,499 at December 31, 2007)	0			1,502
Total current liabilities	11,398			4,876
Long term liabilities:
Convertible debenture payable (net of unamortized discount of $8,625 at December 31, 2006)	1,025			0
Total liabilities	12,423			4,876
Commitments and contingencies
Redeemable Preferred Stock; 7,550 shares authorized, 166 shares issued and outstanding at December 31, 2006, and 0 issued and outstanding at December 31, 2007	141			0
Total Stockholders’ equity (deficiency):
Preferred Stock, $.01 par value, 13,492,450 shares authorized, and 0 shares issued December 31, 2006 and 2007	0			0
Common Stock, $.01 par value; 120,000,000 and 200,000,000 shares authorized at December 31, 2006 and 2007, respectively, 41,535,443 shares issued and outstanding at December 31, 2006 and 56,939,925 shares issued and outstanding at December 31, 2007	415			569
Additional paid-in capital	248,393			259,544
Accumulated deficit	(246,806		)	(261,575		)
Total stockholders’ equity (deficiency)	2,002			(1,462		)
Total liabilities and stockholders’ equity (deficiency)	$	14,566		$	3,414

The accompanying notes are an integral part of these consolidated financial statements.

F-2

WORLDGATE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS,  EXCEPT PER SHARE AMOUNTS)

	Year Ended December 31, 2006			Year Ended December 31, 2007
Net revenues
Product revenues	$	2,511		$	2,565
Service revenues	265			705
Other revenues	0			175
Total net revenues	2,776			3,445
Cost of revenues	3,369			3,046
Gross margins	(593		)	399
Engineering and development (excluding depreciation and amortization amounts of $384, and $382, respectively)	6,238			5,315
Sales and marketing (excluding depreciation and amortization amounts of $57 and $59, respectively)	3,395			2,479
General and administrative (excluding depreciation and amortization amounts of $279 and $161, respectively)	6,983			5,260
Depreciation and amortization	720			602
Total expenses from operations	17,336			13,656
Loss from operations	(17,929		)	(13,257		)
Other income (expense)
Interest and other income	461			178
Gain on trademark assignment	0			500
Change in fair value of derivative warrants and conversion options	(435		)	2,432
Gain on contract termination	1,843			0
Amortization of debt discount	(1,354		)	(4,126		)
Interest expense	(194		)	(466		)
Total other income (expense)	321			(1,482		)
Net loss	(17,608		)	(14,739		)
Accretion on preferred stock, dividends and deemed dividends	(106		)	(30		)
Net loss attributable to common stockholders	$	(17,714	)	$	(14,769	)
Net loss per common share (Basic and Diluted)	$	(0.44	)	$	(0.32	)
Weighted average common shares outstanding (Basic and Diluted)	39,992,499			45,934,717

The accompanying notes are an integral part of these consolidated financial statements.

F-3

WORLDGATECOMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

(DOLLARS AND SHARES IN THOUSANDS)

	Common Stock			Additional Paid-In			Accumulated			Total Stock holders’ Equity
	Shares	Amount		Capital			Deficit			(Deficiency)
Balance at January 1, 2006	39,511	395		242,414			(229,092		)	13,717
Issuance of Common Stock pursuant to employee stock purchase plan	18			27						27
Issuance of Common Stock with sale of convertible debenture	177	2		(2		)				0
Issuance of Common Stock upon settlement of penalties	415	4		479						483
Issuance of Common Stock upon conversion of preferred stock	202	2		332						334
Issuance of Common Stock upon conversion of convertible debenture	1,146	11		1,339						1,350
Reclassification of conversion option liability upon conversion				1,020						1,020
Issuance of warrants in connection with sale of convertible debenture				230						230
Reclassification of derivative warrants				1,521						1,521
Non-cash stock based compensation				837						837
Cancellation of accrued investment fees				171						171
Deemed dividend upon conversion							(68		)	(68		)
Issuance of Common Stock to settle accrued preferred stock dividends	9			14						14
Exercise of Stock Options	57	1		11						12
Accretion on preferred stock and dividends							(38		)	(38		)
Net Loss							(17,608		)	(17,608		)
Balance at December 31, 2006	41,535	$	415	$	248,393		$	(246,806	)	$	2,002
Issuance of Common Stock upon related party investment	2,564	26		974						1,000
Issuance of Common Stock pursuant to employee stock purchase plan	42			24						24
Issuance of Common Stock for marketing services	376	4		263						267
Issuance of Common Stock upon conversion of redeemable preferred stock	327	3		163						166
Issuance of Common Stock to settle accrued preferred stock dividends	9			6						6
Issuance of Common Stock upon conversion of convertible debenture	12,087	121		3,529						3,650
Reclassification of derivative liability				5,384						5,384
Non-cash stock based compensation				808						808
Deemed dividend upon conversion							(4		)	(4		)
Accretion on preferred stock and dividends							(26		)	(26		)
Net Loss							(14,739		)	(14,739		)
Balance at December 31, 2007	56,940	$	569	$	259,544		$	(261,575	)	$	(1,462	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

WORLDGATE COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

	Year Ended December 31, 2006			Year Ended December 31, 2007
Cash flows from operating activities:
Net loss	$	(17,608	)	$	(14,739	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	720			602
Amortization of debt discount	1,354			4,126
Change in fair value of derivative warrants and conversion options	435			(2,432		)
Gain on contract termination	(1,843		)	0
Write down of inventory	585			293
Non-cash stock based compensation	837			1,075
Gain on trademark assignment	0			(500		)
Bad debt expense	0			19
Changes in operating assets and liabilities:
Trade accounts receivable	(872		)	53
Other receivables	9			11
Inventory	(162		)	1,017
Prepaid and other current assets	(272		)	304
Accounts payable	(41		)	(908		)
Accrued expenses	487			726
Accrued compensation and benefits	12			26
Warranty reserve	(18		)	(36		)
Deferred revenue	223			(15		)
Net cash used in operating activities	(16,154		)	(10,378		)
Cash flows from investing activities:
Purchase of property and equipment	(410		)	(132		)
Cash from trademark assignment	0			500
Net cash used in (provided by) investing activities	(410		)	368
Cash flows from financing activities:
Proceeds from issuance of convertible debentures	10,315			0
Proceeds from issuance of common stock	27			1,024
Proceeds from the exercise of stock options	12			0
Net cash provided by financing activities	10,354			1024
Net decrease in cash and cash equivalents	(6,210		)	(8,986		)
Cash and cash equivalents, beginning of year	16,277			10,067
Cash and cash equivalents, end of year	$	10,067		$	1,081

See Note 13 for supplemental cash flow information disclosures

The accompanying notes are an integral part of these consolidated financial statements.

F-5

WORLDGATE COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share amounts)

1.  Basis of Presentation

The consolidated financial statements of WorldGate Communications, Inc. (“WorldGate” or the “Company”) presented herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for annual reports on Form 10-K.  WorldGate was incorporated in Delaware in 1996 to succeed to the business of the predecessor company, WorldGate Communications, L.L.C., which commenced operations in March 1995.  WorldGate has developed a video phone designed specifically for personal video communication, and is differentiated, both from competitors and from previous efforts at personal video telephony, by providing: true-to-life communication (meaning that images and sounds are synchronized, that there are minimum delays between the two ends of the communication, and that the quality of the images is similar to what is perceived with traditional television); ease of deployment by high-speed data, or HSD, operators as well as businesses; a highly styled ergonomic design; and interoperation with the public switched telephone network, or PSTN.

The consolidated financial statements of the Company include the accounts of WorldGate Communications, Inc. and its wholly owned subsidiaries WorldGate Service, Inc., WorldGate Finance, Inc., Ojo Services LLC, Ojo Video Phone LLC and WorldGate Acquisition Corp.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company’s business model is primarily based upon the sale of Ojo video phones and related products and services.  It is the Company’s plan for Ojo video phones to be sold to the Video Relay Service (“VRS”) market (VRS is a form of Telecommunications Relay Service (TRS) that enables persons with hearing disabilities who use American Sign Language (ASL) to communicate with voice telephone users through video equipment, rather than through typed text, which is particularly attractive since the use of video as part of the communication link is critical, and accordingly, the video phone is a major contributing component.  The friends and family of the deaf and hard of hearing customers are a natural expansion to the VRS market.  It is also the Company’s plan for video phones to be distributed through and in partnerships with HSD network providers, as well as through traditional electronics distribution channels.  Video phone service, using the Ojo video phone, is expected to be offered by HSD network providers as a means of attracting new HSD subscribers as well as maintaining existing subscribers.  The Company believes that HSD network providers could realize recurring incremental revenue streams associated with offering products such as the Company’s Ojo video phone, and accordingly the Company believes they will embrace the concept and business model.  The suggested consumer offering for a video phone service follows the traditional HSD model, which may involve a subsidy of the required hardware by the recurring service fee.  The Company anticipates that video phone service subscribers will be able to either purchase Ojo or lease a unit from the HSD network provider.  There is also a parallel market for sales of video phones directly to consumers through the standard consumer electronic channels.  Sales of Ojo video phones through these retail channels still require a video phone service and the Company is currently offering such a video phone service, with a an associated monthly service fee, for units sold in this manner.  Ojo is being marketed domestically and internationally to both the residential and business sectors through the standard consumer and business electronics channels.

2.  Summary of Significant Accounting Policies

Liquidity and Going Concern Considerations

As of December 31, 2007 the Company had cash and cash equivalents of $1,081.  The operating cash used in operations for the year ended December 31, 2007 was $10,378.  The funds the Company received as a result of private placements of its securities on December 1, 2003 and December 4, 2003, January 21, 2004, April 22, 2004, June 24, 2004, December 15, 2004, August 3, 2005, August 11, 2006 and October 13, 2006 have permitted it to fund the development of the Company’s business.

The Company had $4,876 of liabilities and substantially all of its assets are pledged as collateral as of December 31, 2007. These liabilities include $236 of detachable warrants related to the Company’s private placement of preferred stock in June 2004 and $6,001 (including debt discount of $4,499) of debt liability related to the Company’s financing in August 2006.

The Company’s short term cash requirements and obligations include, inventory, accounts payable and capital expenditures from operations, and operating expenses.

F-6

The Company has incurred recurring net losses and has an accumulated deficit of $261,575, stockholder’s deficiency of $1,462 and a working capital deficit of $2,380 as of December 31, 2007.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

On August 11, 2006 the Company completed a private placement with an institutional investor of convertible debentures in the aggregate principal amount of up to $11,000.  These convertible debentures have a maturity of three years, an interest rate of 6% per annum, and are convertible at the option of the investors into WorldGate common stock at a conversion price equal to the lesser of $1.75 per share or 90% of the average of the five lowest daily volume weighted average closing price (“VWAP”) of the common stock during the fifteen trading days immediately preceding the conversion date (subject to adjustment in the event of stock dividends and splits and certain distributions to stockholders, fundamental transactions, and future dilutive equity transactions).  Interest is payable at maturity, and the Company may elect to pay the interest amount in cash or shares of its common stock.  Through December 31, 2007 the investors converted $4,999 of the convertible debt into 13,233,224 shares of the Company’s common stock. During the period January 1, 2008 through April 16, 2008 the investors converted an additional $63 of convertible debt into 840,571 additional shares of the Company’s common stock.

As part of this private placement the Company issued five-year warrants to purchase a total of up to 2,595,000 shares of WorldGate common stock, with 1,145,000 of the warrants having an exercise price of $1.85 per share (with 624,545 of these warrants issued at the initial closing and 520,455 warrants issued at the closing of the second tranche of funding), 1,100,000 of the shares having an exercise price of $2.35 per share (with 600,000 of these warrants issued at the initial closing and 500,000 warrants issued at the closing of the second tranche of funding), and 350,000 warrants having an exercise price of $2.60 per share (with 190,909 of these warrants issued at the initial closing and 159,091 warrants issued at the closing of the second tranche of funding).

On February 5, 2008, February 13, 2008, February 15, 2008, and April 8, 2008 the Company received notices from YA Global, holder of the Company’s convertible debentures, claiming that the Company was in default of the terms of the debentures for stating its intent to wind down its business, failure to maintain current financial statements in the registration statement relating to the sale of the Company’s common stock issuable upon conversion of one of those debentures, to comply with a covenant to their satisfaction that provided for the disclosure of information they considered material, and entering into the agreement with Aequus Technologies Corp. and Snap Telecommunications, Inc. (collectively “Aequus”), a provider of VRS and Video Remote Interpreting (VRI) services for the deaf and hard of hearing, and as a result YA Global was exercising its right to accelerate payment of the full principal amount of the debentures.  While the registration statement was not effective as of December 31, 2007, the underlying alleged default with respect to the registration statement was in any event cured by the amendments to Rule 144 that became effective on February 15, 2008, obviating the need to maintain that registration statement.  The Company has notified YA Global that it disputes these claims and whether they constitute a continuing event of default under the debentures.  The Company has also notified YA Global that their right to accelerate payment is also disputed.  The Company is working with YA Global in an effort to settle their disputes regarding the claimed defaults and acceleration.  Although the Company disputes YA Global’s claims of default, and does not believe YA Global has any basis to accelerate payments on the debenture, the Company has reclassified the YA Global convertible debenture to a current liability on the balance sheet, solely in light of the existence of the alleged claims.

The Company’s ability to generate cash is dependent upon the sale of its Ojo product and on obtaining cash through capital markets.  The Company began generating revenue from the commercial shipment of its Ojo product in April 2005 and the Company expects revenues to increase as the product continues to roll out to the marketplace.  Depending on the ramp up of sales and the achievable margins, the increased level of sales activity should have a positive impact on the Company’s cash flows from operations, which will support its ability to meet its cash requirements in the long term.  Given that the Company’s video phone business involves the development of a new product line with no market penetration, in an underdeveloped market sector, no assurances can be given that sufficient sales, if any, will materialize.  The lack of success of the Company’s sales efforts could also have an adverse ability to raise additional financing.

On April 28, 2004, the Company entered into a multi-year agreement with General Instrument Corporation d/b/a the Connected Home Solutions Business of Motorola, Inc. (“General Instrument”) for the worldwide distribution of the Ojo personal video phone.  This agreement provided for General Instrument to be WorldGate’s exclusive distributor of its broadband video phone products and for WorldGate to be General Instrument’s exclusive supplier of its broadband video phone products.  The Company began generating revenue from commercial shipment of the Ojo product in April 2005.  Initially all product sales were conducted through General Instrument, its exclusive distributor and all revenue was based upon sales of the Company’s products to General Instrument for their distribution to resellers.  In February 2006, its distributor relationship with General Instrument ended and the Company began to directly distribute and sell its products.  Since the completion of the transition activities from

F-7

General Instrument, the Company has been directly responsible for all of the sales and marketing efforts related to its Ojo products.  Although the Company was able to increase the number of distribution relationships with service providers and retailers carrying its products, incremental sales remained low, at least in part due to the nature of the product as one of the first entrants in a new product category, namely, personal video phones.  In the latter part of the third quarter of 2007 product shipments commenced to VRS customers.  The Company’s Ojo video phone provides this equipment link for the hard-of-hearing VRS user with a TRS operator (called a Communications Assistant, or CA) so that the VRS user and the CA can see and communicate with each other using ASL in signed conversation.  VRS enables deaf and hard-of-hearing customers to improve their connection with people in their personal and business lives.  This market is particularly attractive since the use of video as part of the communication link is critical, and accordingly, the video phone is a major contributing component.  Entrance to the VRS market has contributed significantly to the Company’s efforts to increase product awareness and sales.  Depending on the continued ramp up of sales, and the achievable margin, the increased level of sales and service activity should have a positive impact on the Company’s cash flows from operations.

On February 4, 2008, the Company announced that it was in a dispute with Aequus over the payment of significant monies which the Company believed were owed to it.  The customer’s refusal to pay such monies had contributed to a shortfall in the operating cash available to the Company to continue operations, and accordingly, on January 30, 2008, the Company shut down its operations.  The announcement further indicated that this was a first step to winding down its business, which would occur if the Company was not able to secure payment of the monies believed to be owed to it by the customer, and/or new financing.

On March 31, 2008, the Company entered into a new agreement with Aequus and Snap!VRS. This new agreement, inter alia, provides for the (i) resolution of a dispute with Aequus regarding amounts the Company claimed were owed to the Company by Aequus and the termination by the Company of service to Aequus, (ii) payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, (iii) agreement to arbitrate approximately $1.4 million additional dollars claimed by the Company to be owed by Aequus and (iv) purchase of an additional $1.5 million of video phones by Aequus (the “Aequus Transaction’).  As a result of this new agreement Aequus is planning to build a new data center, with support and training provided by the Company, and upon completion, directly operating a video phone service for its customers.

 Based on management’s internal forecasts and assumptions, including, among others, the receipt of the payments per its agreement with Aequus of March 31, 2008, assumptions regarding the proceeds that might result from the arbitration with Aequus of amounts the Company claims is owed to it by Aequus and assumptions regarding its short term cash requirements and its projected revenue growth, the Company might have sufficient cash on hand to meet its obligations into 2009. However,Aequus is a new company with an unproven track recordand if Aequus is not successful, or if their activities do not lead to significant sales of its product, their operating results will be adversely affected, and its ability to pay all or any of the monies obligated per the agreement, including payment for products purchased or the payment of any monies the Company is awarded as a result of agreed arbitration with Aequus, may not materialize or could be significantly reduced and the Company may have insufficient capital to operate its business.

On October 4, 2007, the Company was delisted from the NASDAQ Capital Market and on October 10, 2007 was listed on the NASDAQ OTC Bulletin Board which made it subject to the Securities Exchange Commission (“SEC”) penny stock rules, and could adversely affect the market liquidity of the Company’s common stock and its ability to raise additional capital.  No assurances can be given that additional financing transactions can be consummated. .

The Company continues to evaluate possibilities to obtain additional financing through public or private equity or debt offerings, bank debt financing, asset securitizations, or from other sources, to obtain such financing. There can be no assurance that this additional financing will be available on terms acceptable to the Company, if at all.  If the Company is unable to obtain sufficient funds the Company may suspend operations which could have a material adverse impact on its business prospects. No assurances can be given that additional financing transactions can be consummated. If the Company is unable to obtain sufficient funds the Company may further reduce the size of the organization or suspend operations which could have a material adverse impact on its business prospects. In order to stretch its current working capital to provide more time for this to happen, in 2007 the Company significantly cut its operating expenses, including suspension of a portion or all salaries for a time period in the third and fourth quarters of 2007 for certain senior management of the Company.  No assurances can, however, be made that these efforts will be successful.

F-8

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.  Significant estimates relate to inventory valuation, deferred tax valuation allowances, deferred revenues, valuation of derivative liabilities and stock based compensation.  Actual results could differ from those estimates.

Risks and uncertainties

The Company’s primary line of business is the development and sale of video phone products and technology. Although the Company has launched its first product based on this technology and, although the Company has realized some revenues for the commercial sale of its product, the revenues to date have not been substantial. Given the early stage of its product and the lack of operating history in the video phone business, it is difficult to predict its future results.

On April 28, 2004, the Company entered into a multi-year agreement with General Instrument for the worldwide distribution of the Ojo personal video phone. This agreement provided for General Instrument to be WorldGate’s exclusive distributor of its broadband video phone products and for WorldGate to be General Instrument’s exclusive supplier of its broadband video phone products.  On February 17, 2006, the Company mutually agreed with General Instrument to end this agreement.  The ending of this agreement immediately terminated this exclusivity for both parties, and accordingly enabled WorldGate to expand its focus in bringing Ojo to the marketplace. In addition to its current role for development and manufacture of Ojo, WorldGate assumed direct responsibility and control for the advertising, marketing, and distribution of its products.  As part of ending its agreement with General Instrument, and in anticipation of WorldGate inventory requirements as a result of taking full responsibility for product distribution, WorldGate negotiated the right to buy back about two-thirds of the units sold to General Instrument, valued at approximately $2,765 (based upon the original sales price to General Instrument), for approximately $1,064. This is less than half of what it would cost the Company to purchase the same inventory from its manufacturing sources.  As a result, the Company recorded a reserve for returns and reduced revenue in the amount of approximately $2,310 during the fourth quarter of 2005.  In addition, the Company recorded no revenue for units shipped to General Instrument in the first quarter 2006 and for the year ended December 31, 2006 has recorded a gain on termination of this agreement of approximately $1,843 as a result of the lower purchase price of the inventory repurchased from General Instrument ($1,393, net of the cost of rework for rebranding the product and the adjustment of the inventory to its current replacement value) and reversal of the product refund program reserve ($212) as well as an adjustment of the warranty reserve for products repurchased ($233), both of which resulted from termination of the Company’s agreement with General Instrument. Subsequent to the ending of the agreement with General Instrument the Company is depending upon distribution partners, including, for example, wholesalers, retailers and service providers, to provide the worldwide sales and distribution of the Ojo video phone. If the Company’s partners are not successful, or if their activities do not lead to significant sales of its product, operating results will be adversely affected, revenue may not materialize or could be significantly reduced and the Company could lose potential customers.

On May 9, 2006 the Company entered into a multiyear agreement with Aequus for them to purchase Ojo video phones through its wholly owned subsidiary Snap Telecommunications Inc., (Snap!VRS) , a provider of Video Relay Services (VRS) and Video Remote Interpreting (VRI) services for the deaf and hard of hearing.  On June 20, 2007 the Company announced that it had expanded its relationship with Aequus and Snap!VRS modifying their earlier agreement and on March 31, 2008, the Company entered into a new agreement with Aequus Technologies Corp. and Snap Telecommunications, Inc. (collectively “Aequus”.)  This new agreement, inter alia, provides for the (i) resolution of a dispute with Aequus regarding amounts the Company claimed were owed to the Company by Aequus and the termination by the Company of service to Aequus, (ii) payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, (iii) agreement to arbitrate approximately $1.4 million claimed by the Company to be owed by Aequus and (iv) purchase of an additional $1.5 million of video phones by Aequus (the “Aequus Transaction’).  As a result of this new agreement Aequus is planning to build a new data center, with support and training provided by the Company, and upon completion, directly operating a video phone service for its customers. . The Company currently is heavily dependent on Aequus for the majority of its revenue.  If Aequus is not successful, or if their activities do not lead to significant sales of its product, its operating results will be adversely affected, and their ability to pay all or any of the monies obligated per the agreement, including for products purchased or the payment of any monies the Company is awarded as a result of agreed arbitration with Aequus, may not materialize or could be significantly reduced and the Company may have insufficient capital to operate its business.  The loss of business or payments from Aequus could materially impair the Company’s continuing operations.

F-9

The Company also depends on relationships with third parties such as contract manufacturing companies, chip design companies and others who may be sole source providers of key components and services critical for the product the Company is developing in its video phone business. The components and raw materials used in the Company’s Ojo video phone product are generally available from a multitude of vendors and are sourced based, among other factors, on reliability, price and availability. A formal relationship with Mototech has been established for the volume manufacture of Ojo. The Company’s non exclusive agreement with Mototech allows either party to terminate the agreement with 90 days prior notice. At the present time Mototech is the Company’s sole manufacturer of its video phones.  If Mototech or other providers of components and/or manufacturing services do not produce these components or provide their services on a timely basis, if the components or services do not meet the Company’s specifications and quality control standards, or if the components or services are otherwise flawed, the Company may have to delay product delivery, or recall or replace unacceptable products. In addition, such failures could damage the Company’s reputation and could adversely affect its operating results. As a result, the Company could lose potential customers and any revenues that it may have at that time may decline dramatically.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2007 the Company maintained cash balances at financial institutions, which exceeded the $100 FDIC limit.

Accounts Receivable

The Company records accounts receivable at the invoiced amount.  Management reviews the receivable balances on a monthly basis.  Management analyzes collection trends, payment patterns and general credit worthiness when evaluating collectibility and requires letters of credit whenever deemed necessary.  Additionally, the Company may establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends related to past losses and other relevant information.  Account balances would be charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  As of December 31, 2007, the Company did not have an allowance for doubtful accounts or any off-balance sheet credit exposure related to its customers.  At December 31, 2007, approximately 82% of accounts receivable were concentrated with one domestic customer.  At December 31, 2006, approximately 95% of accounts receivable was concentrated with five customers.  The Company had two distribution customers that represented 8% of accounts receivable, and had two major international telecommunications customers that represented 82% of accounts receivable at December 31, 2006.  Trade accounts receivable at December 31, 2006 and 2007 were $1,005 and $166, respectively.  Bad debt expense recorded for the years ended December 31, 2007 and 2006 was $19 and $0, respectively.

Inventory

The Company’s inventory consists primarily of finished goods equipment to be sold to customers. The cost is determined on a First-in, First-out (“FIFO”) cost basis. A periodic review of inventory quantities on hand is performed in order to determine and record a provision for excess and obsolete inventories. Factors related to current inventories such as technological obsolescence and market conditions are analyzed to determine estimated net realizable values. A provision is recorded to reduce the cost of inventories to the estimated net realizable values. To motivate trials and sales of its Ojo product, the Company has historically subsidized, and plans in the future to continue to subsidize, certain of its product sales to customers that result in sales of inventory below cost.  In accordance with Accounting Research Bulletin (“ARB”) No. 43, the Company reflects such inventory at the lower of cost or market and has reduced its inventory at December 31, 2007 and December 31, 2006 by $293 and $97, respectively, to reflect such valuation.  Any significant unanticipated changes in the factors noted above could have an impact on the value of the Company’s inventory and its reported operating results. At December 31, 2007 and 2006 the Company’s inventory balance was $1,057 and $1,600, respectively. In 2007 and 2006, the Company’s inventory was reduced by $293 and $585, respectively to their estimated net realizable values.

Property and Equipment

Property and equipment is carried at original cost. Depreciation is recorded on a straight-line basis over the estimated useful lives of the related assets. The Company depreciates furniture and fixtures over seven years; office equipment over five years; and computer equipment and trade show exhibits over three years. Leasehold improvements are capitalized and amortized on a straight-line basis over the shorter of their useful life or the term of the lease. Maintenance and repairs are expensed as incurred. When the property or equipment is retired or otherwise disposed of, related costs and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations.

F-10

Long-lived Assets

The Company periodically evaluates the carrying value of long-lived assets when events and circumstances warrant such review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such assets are separately identifiable and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined by using the anticipated cash flows discounted at a rate commensurate with the risk involved. Measurement of the impairment, if any, will be based upon the difference between carrying value and the fair value of the asset.

Statements of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” provides guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of, and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented.

Accrued Expenses

                Accrued expenses at December 31, 2007 primarily consist of $802 of inventory purchases and $658 of interest on convertible debentures as described below in “Accounting for Preferred Shares and Derivative Shares.” Accrued expenses at December 31, 2006 primarily consisted of various media advertising cost of $374 and $194 of interest on convertible debentures.

Accounting for Preferred Shares and Derivative Shares

In June 2004, WorldGate completed a private placement of preferred stock. The preferred stock had 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 had a staged maturity over three years with scheduled payments of one third due after 18 months, one half of the remainder due after 24 months and the balance due after 36 months, and the ability to be redeemed at maturity in cash or, at the Company’s option, subject to certain conditions had the potential to not be solely under the control of the Company, through the issuance of the number of shares of common stock determined by dividing the liquidation preference of the preferred shares by the then average market price over the ten consecutive trading days prior to the date of conversion.  If the effectiveness of the registration statement lapsed, the Company ceased to be listed on certain specified exchanges and trading in the Company’s stock is suspended or a change in control occurred with respect to the Company, the Company could have been required to settle redemption of the preferred stock with cash instead of its common shares.  Furthermore, since the market price of the Company’s common stock cannot be predicted, the actual number of shares of the Company’s common stock that could have been required if a redemption was made through the issuance of common stock also could not be predicted. The private placement included numerous provisions intended to protect these institutional investors including a cash payment penalty of 1.0% per month for unredeemed preferred shares once registration of the shares lapsed and until the registration again became effective.

The preferred stock had embedded conversion options. Specifically, the holders of the preferred stock could have converted their shares into the Company’s common stock at a conversion price of $2.35 per preferred share. In addition the Company could have forced conversion of the preferred stock into common stock if the Company achieved 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 was subject to adjustment if, at any time after the date the preferred shares were issued, the Company issues or sells, or is deemed to have issued or sold, any shares of the Company’s common stock for per share consideration less than the conversion price of the preferred shares on the date of such issuance or sale.  Accordingly, the number of common shares issuable upon the conversion of the preferred shares could not be predicted.  Furthermore, net-cash settlement could have been required in the event of conversion default under certain circumstances that could not be solely under the control of the Company.  If the effectiveness of the registration statement lapsed, the Company ceased to be listed on certain specified exchanges and trading in the Company’s stock was suspended or a change in control occurs with respect to the Company, the Company could have been required to settle a conversion of the preferred stock with cash instead of its common shares.

Also, as part of the private placement the Company issued five-year warrants to purchase up to 803,190 shares of its common stock at an exercise price of $2.69 per share and five-year warrants to purchase up to 803,190 shares of its common stock at an exercise price of $3.14 per share. The investors also received an additional investment right, for a limited period of time, to purchase 1,606,383 additional shares of common stock shares at $3.14 a share. This exercise price of the warrants is subject to adjustment if, at any time after the date the warrants were issued, the Company issues or sells, or is deemed to have issued or sold, any shares of the Company’s common

F-11

stock for per share consideration less than the exercise price of the warrants on the date of such issuance or sale.  Accordingly, the number of common shares that will be issued upon the exercise of the warrants cannot be predicted.  As of September 30, 2006, 125,000 warrants exercisable at $2.69 had been exercised and 51,915 warrants exercisable at $3.14 had been exercised.  All of the additional investment rights had been exercised as of June 30, 2006.  Based on anti-dilution provisions contained within this private placement the $2.69 warrants were modified to an exercise price of $0.69 as of December 31, 2007 and the number of outstanding warrants were increased by 1,978,970 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $3.14 warrants were also modified to an exercise price of $0.76 as of December 31, 2007 and the number of outstanding warrants were increased by 2,332,045 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $2.69 warrants were further modified to an exercise price of $0.23 as of March 31, 2008 and the number of outstanding warrants were increased by an additional 5,202,945 to a total of   7,181,914 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $3.14 warrants were also further modified to an exercise price of $0.25 as of March 31, 2008 and the number of outstanding warrants were increased by an additional 6,242,552 to a total of 8,574,597 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.

Of the 7,550 preferred shares issued under this private placement, all shares have been redeemed as of December 31, 2007.

With respect to the Company’s accounting for the preferred stock, Emerging Issues Task Force (“EITF”) Topic D-98, paragraph 4, states that Rule 5-02.28 of Regulation S-X requires securities with redemption features that are not solely within the control of the issuer to be recorded outside of permanent equity. As described above, the terms of the preferred stock include certain redemption features that may be triggered by events that are not solely within the control of the Company, such as a potential failure in the Company’s ability to maintain an effective registration statement. Furthermore, the actual number of shares of common stock required to satisfy redemption is based upon the market value of the common stock at the time of the redemption, which cannot be predicted. Accordingly, the Company has classified the preferred stock as temporary equity and the value ascribed to the redeemable preferred stock upon initial issuance, i.e. at June 24, 2004, was the amount received in the transaction minus the fair value ascribed to the conversion options and warrants. The initial value of the redeemable preferred stock is accreted up to the redemption value (the amount received in the transaction) over the future relevant periods using the interest method.The value of the redeemable preferred stock at December 31, 2007 was $0.

The terms of the preferred stock include certain conversion options that represent derivative financial instruments under paragraph 12 of SFAS No. 133 “Accounting for Derivatives Instruments and Hedging Activities” (“SFAS 133”) and thus were separated from the preferred stock and valued using the Black-Scholes option pricing model.  The conversion options include certain provisions that could result in a variable number of shares to be issued upon conversion, adjustment to the strike price at which conversion shares will be determined, or the requirement for the Company to settle the conversion options in cash.  EITF 00-19, “Accounting for Derivative Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” (“EITF 00-19”) states that if the conversion options require net cash settlement in the event of circumstances that are not solely within the Company’s control they should be classified as a liability measured at fair value on the balance sheet.

The terms of the five-year warrants include cash penalty provisions in the event that the Company fails to meet its obligations to deliver registered shares to the warrant holder upon exercise and an anti-dilution provision that could result in a variable number of shares to be issued upon warrant exercise. Additionally, the terms and conditions of the warrants provide for net settlement through cashless exercise whereby the shares delivered to the warrant holder would be readily convertible to cash. In accordance with EITF 00-19 and given the terms and conditions of the warrants as outlined above, the Company has classified the warrants as a liability on its balance sheet measured at fair value using the Black-Scholes option pricing model.

The Company accounts for both the conversion options and warrants using the fair value method at the end of each quarter, with the resultant gain or loss recognition recorded against earnings.  On June 23, 2007, the holder converted the remaining 166 shares of preferred stock into 326,471 shares of common stock.  As a result of this conversion, the conversion option liability was reclassified to equity.  The remaining warrants are valued using the Black-Scholes valuation model. At December 31, 2006 and 2007, the closing common stock price was $1.34 and $0.19, respectively, applicable volatility rates were 99% and 108%, respectively, and the period close risk-free interest rates as of December 31, 2006 were between 4.70% and 4.78% for the instrument’s contractual life of

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between 0.5 for the conversion option, and 2.5 years for the warrants (continuously compounded), and as of December 31, 2007 the period close risk-free interest rates were 3.20%  for the instrument’s contractual remaining life of  1.5 years for the warrants (continuously compounded), and represent the key assumptions used in the valuation calculation.  The result was a $50 non cash charge for the year ended December 31, 2006, and a $772 non cash gain for the year ended December 31, 2007.

After the mark to market adjustments, the balances of the conversion option derivative liability and the warrants derivative liability were $11 and $977, respectively, at December 31, 2006, and $0 and $236, respectively, at December 31, 2007.

Accounting for Secured Convertible Debenture and Related Warrants.

On August 11, 2006 the Company completed a private placement with an institutional investor of a convertible debenture in the aggregate principal amount of  $11,000.  This convertible debenture has a maturity of three years, an interest rate of 6% per annum, and is convertible at the option of the investors into WorldGate common stock at a conversion price equal to the lesser of $1.75 per share or 90% of the average of the five lowest daily volume weighted closing price (“VWAP”) of the common stock during the fifteen trading days immediately preceding the conversion date (subject to adjustment in the event of stock dividends and splits and certain distributions to stockholders, fundamental transactions, and future dilutive equity transactions). The number of shares available is subject to an overall limit on the number of issuable shares , as further described below.  Interest is payable at maturity, and the Company may elect to pay the interest amount in cash or shares of its common stock. There was $658 of accrued interest as of December 31, 2007.  Through December 31, 2007 the investors converted $4,999 of the convertible debt into 13,233,225 shares of the Company’s common stock. During the period January 1, 2008 through April 16, 2008 the investors converted an additional $63 into 840,571 additional shares of the Company’s common stock.

The Company received $6,000 ($5,615, net of transaction costs) upon the closing of the transaction on August 11, 2006 (the “First Tranche”) and the remaining $5,000 ($4,700, net of transaction costs) was received on October 13, 2006 (the “Second Tranche”) after receiving stockholder approval on October 11, 2006 and obtaining an effective registration of the shares of common stock issued and issuable upon conversion of the convertible debentures in the First Tranche of this transaction.  On May 18, 2007 the Company and the investor amended the terms of the secured convertible debentures to remove the investor’s ability, upon conversion of the debentures, to demand cash in lieu of shares of common stock and to clarify that the Company may issue restrictive shares if there is no effective registration statement at the time of conversion. The terms of the convertible debentures were amended to permit the Company to reclassify the derivative conversion option liability embedded in the convertible debentures from debt to equity.

The Company has the right to redeem all or any portion of the principal amount of the convertible debentures in cash at any time upon not less than four business days notice if the closing price of its stock is less than $1.75 per share.  Such early redemption will, however, require the Company to pay a 10% prepayment premium.  In addition, without any prepayment premium, the Company has the right to force the holders to convert a maximum of $500 of the principal amount of the convertible debenture in any thirty day period if for five consecutive trading days the VWAP of its common stock is above $1.925 per share but less then $3.50 per share and providing the daily trading volume exceeds 200,000 shares for these five days, and certain other conditions are met.  If the VWAP of the Company’s common stock is greater than $3.50 per share for 30 consecutive trading days, the daily trading volume exceeds 250,000 shares for five days prior, and if certain other conditions are met, the Company can also force the holder to convert all or any portion of the outstanding principal and interest into shares of its common stock without any prepayment premium.

There are some restrictions on the holder’s right to convert the convertible debentures.  The holder cannot make any conversions below $1.75 per share (i) until the earlier of the date registered common stock can be issued pursuant to such conversion or January 1, 2007, (ii) which would exceed $500 in principal amount in any calendar month, or (iii) which would result in the issuance of more than 840,000 shares of the Company’s common stock per calendar month (provided that this maximum share limit will be waived by the Company unless it elects to pay the holder in cash the difference in value between 840,000 shares and the number of shares the holders wishes to convert, up to the $500 per month conversion limit). On May 31, 2007, the Company waived this maximum share limit for a certain conversion of $500, and permitted the issuance of an additional 286,634 shares of common stock, in lieu of making a cash payment.  If the Company is in default under the convertible debentures, these limitations are waived. The holder is also not restricted in making conversions at $1.75.  In no case, however may the holder convert the convertible debentures if it would result in beneficial ownership of more than 9.99% of the Company’s outstanding common stock (though this provision can be waived by the holder upon 65 days prior notice).  If the Company, at any time while the convertible debentures are outstanding, shall (a) pay a stock dividend or otherwise make a distribution or distributions on shares of its common stock or any other equity or equity equivalent securities

F-13

payable in shares of common stock, (b) subdivide outstanding shares of common stock into a larger number of shares, (c) combine (including by way of reverse stock split) outstanding shares of common stock into a smaller number of shares, or (d) issue by reclassification of shares of the common stock any shares of capital stock of the Company, then the convertible debenture holder is entitled to have the conversion price adjusted to correspond to common stock holders’ rights to any such stock dividend, stock split, stock combination or reclassification of shares. The $1.75 conversion price is also subject to a weighted average dilution adjustment if the Company issues shares (apart from certain excluded issuances) of its capital stock at an effective price per share less than the conversion price, as defined above. The Company received a one-time waiver from its institutional investor of the dilution adjustment related to the issuance of common stock and warrants to Antonio Tomasello, a private investor and father of David Tomasello, a director of the Company.  The Company also granted the convertible debentures holders a security interest in substantially all of its assets.  Moreover, the Company is required to register the shares of common stock issuable to the investor for resale to the public pursuant to a registration rights agreement, containing customary terms, conditions and indemnities.  The private placement includes numerous provisions intended to protect the institutional investor, including a cash payment penalty in which the Company shall pay liquidated damages to the selling security holder in the event that (i) a registration statement is not timely filed, (ii) a registration statement is not timely declared effective by the SEC or (iii) sales cannot be made pursuant to the registration statement.  Such liquidated damages shall be equal to 1% of the liquidated value of the outstanding convertible debentures for each thirty day period in which the Company fails to satisfy provisions (i), (ii) or (iii) above.  In no event, however, shall liquidated damages exceed 12% of the aggregate purchase price of $11,000, which is $1,320.  Pursuant to the Amendment and Waiver, dated November 22, 2006, as amended, between the Company and the selling security holder, the parties eliminated liquidated damages for the Company’s failure to satisfy clauses (i) and (ii) above in connection with the Second Tranche.  Accordingly, the Company has recorded no liability in connection with these liquidated damage provisions.

In addition, the aggregate number of shares to be issued upon conversion, exercise of the warrants, payment for commitment shares, and payment of liquidated damages pursuant to the registration rights agreement has been limited to 61,111,111 shares of common stock. On September 19, 2006, the Company’s registration statement to register the shares under this private placement was declared effective.

As part of this private placement, the Company issued to the investor 177,419 commitment shares of common stock with a fair value at issuance of approximately $222.  The Company also issued five-year warrants to purchase a total of up to 2,595,000 shares of WorldGate common stock, with 1,145,000 of the warrants having an exercise price of $1.85 per share (with 624,545 of these warrants issued at the closing of the First Tranche and 520,455 warrants issued at the closing of the Second Tranche), 1,100,000 of the shares having an exercise price of $2.35 per share (with 600,000 of these warrants issued at the closing of the First Tranche and 500,000 warrants issued at the closing of the Second Tranche), and 350,000 warrants having an exercise price of $2.60 per share (with 190,909 of these warrants issued at the closing of the First Tranche and 159,091 warrants issued at the closing of the Second Tranche).

Regarding the First Tranche, on September 8, 2006, the Company filed an initial registration statement, No. 333-137216, for 7,975,752 shares of common stock, which included 7,798,333 shares underlying the convertible debentures and 177,419 commitment shares.  This registration statement went effective on September 19, 2006.  On June 25, 2007, the Company filed a post-effective amendment to Registration No. 333-137216, in which the number of shares to be registered was reduced to 4,828,848.  The registration rights agreement requires that the Company maintain the effectiveness of such registration statement until all of the securities have been sold or until they become eligible for sale pursuant to Rule 144(k).  Failure to maintain the effectiveness of the registration statement may constitute an event of default.

Regarding the Second Tranche, on May 29, 2007, the Company filed an initial registration statement, No. 333-143323, for 22,024,248 shares of common stock, which included 19,429,248 shares underlying the convertible debentures and 2,595,000 shares issuable upon the exercise of warrants.  The Company filed an amendment to Registration No. 333-143323 on August 6, 2007.  Among other changes, the number of shares to be registered was reduced from 22,024,248 to 7,716,416, all of which are issuable upon the conversion of the convertible debentures.  The registration rights agreement requires that the Company maintain the effectiveness of such registration statement until all of the securities have been sold or until they become eligible for sale pursuant to Rule 144(k).  Pursuant to waivers granted by the purchaser of these shares, the Company was given until May 30, 2007 to file a registration statement for these shares. Furthermore such waiver requires that any failure to file this registration statement or to cause it to be declared effective will not result in any damages becoming due thereunder, liquated or otherwise.

Upon any liquidation, dissolution or winding up of the Company, the holder of the convertible debenture will be entitled to receive the principal amount of the convertible debenture, together with accrued and unpaid interest, prior to any payment to the holders of the Company’s common and preferred stock.

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The terms of the warrant agreements provide for the adjustment of the exercise price and the number of shares of common stock to be issued upon the Company’s issuance of certain securities deemed to be dilutive under the agreement.  Under certain conditions, the holder may exercise these warrants on a cashless basis.

On February 5, 2008, February 13, 2008, February 15, 2008, and April 8, 2008 the Company received notices from YA Global, holder of the Company’s convertible debentures, claiming that the Company was in default of the terms of the debentures for stating its intent to wind down its business, failure to maintain current financial statements in the registration statement relating to the sale of the Company’s common stock issuable upon conversion of one of those debentures, to comply with a covenant to their satisfaction that provided for the disclosure of information they considered material, and entering into the agreement with Aequus Technologies, and as a result YA Global was exercising its right to accelerate payment of the full principal amount of the debentures. While the registration statement was not effective as of December 31, 2007, the underlying alleged default with respect to the registration statement was in any event cured by the amendments to Rule 144 that became effective on February 15, 2008, obviating the need to maintain that registration statement. The Company has notified YA Global that it disputes these claims and whether they constitute a continuing event of default under the debentures. The Company has also notified YA Global that their right to accelerate payment is also disputed. The Company is working with YA Global in an effort to settle their disputes regarding the claimed defaults and acceleration.  Although the Company disputes YA Global’s claims of default, and does not believe YA Global has any basis to accelerate payments on the debenture, the Company has reclassified the YA convertible debenture to a current liability on the accompanying balance sheet, solely in light of the existence of the alleged claims.

Prior to the May 18, 2007 amendment, subject to the share limitation, as discussed above, the actual number of shares of the Company’s common stock that would be required if a conversion of the convertible debenture was made through the issuance of common stock could not be predicted.  If the Company’s requirements to issue shares under these convertible debenture agreements had exceeded the share limitation, or if it was not listed or quoted for trading on at least the NASDAQ OTC Bulletin Board, the Company could have been required to settle the conversion of the convertible debentures with cash instead of its common stock.

The Company initially accounted for conversion options embedded in convertible notes in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”)  SFAS 133 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments in accordance with EITF 00-19.  EITF 00-19 states that if the conversion option requires net cash settlement in the event of circumstances that are not solely within the Company’s control that they should be classified as a liability measured at fair value on the balance sheet.  Effective January 1, 2007, the Company adopted the provisions of EITF Issue No. 06-7, “Issuer’s Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in Financial Accounting Standards Board (“FASB”) Statement No. 133, Accounting for Derivative Instruments and Hedging Activities” (“EITF 06-7”). Under EITF 06-7, at the time of issuance, an embedded conversion option in a convertible debt instrument may be required to be bifurcated from the debt instrument and accounted for separately by the issuer as a derivative under SFAS 133, based on the application of EITF 00-19. Subsequent to the issuance of the convertible debt, facts may change and cause the embedded conversion option to no longer meet the conditions for separate accounting as a derivative instrument, such as when the bifurcated instrument meets the conditions of Issue 00-19 to be classified in stockholders’ equity. Under EITF 06-7, when an embedded conversion option previously accounted for as a derivative under SFAS 133 no longer meets the bifurcation criteria under that standard, an issuer shall disclose a description of the principal changes causing the embedded conversion option to no longer require bifurcation under SFAS 133 and the amount of the liability for the conversion option reclassified to stockholders’ equity. EITF 06-7 should be applied to all previously bifurcated conversion options in convertible debt instruments that no longer meet the bifurcation criteria in SFAS 133 in interim or annual periods beginning after December 15, 2006, regardless of whether the debt instrument was entered into prior or subsequent to the effective date of EITF 06-7. The adoption of EITF 06-7, had the effect that on May 18, 2007, on account of the Company’s amendment of its convertible debenture, $4,335 of the derivative liability was reclassified to stockholders’ equity (see Note 2 of the accompanying consolidated financial statements for the twelve months ended December 31, 2007). The discount on the convertible debentures of $5,240 continues to be amortized until October 2009.

Upon the issuance date there was an insufficient number of authorized shares of Common Stock in order to permit exercise of all of the warrants issued on August 11, 2006.  In accordance with EITF 00-19, when there are insufficient authorized shares, the obligation for the exercise of investor warrants should be classified as liability measured at fair value on the balance sheet. Accordingly, at August 11, 2006, in connection with the $6,000 tranche, the convertible feature of the convertible debenture and the warrants were recorded as derivative liabilities

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of $4,446 and $1,269, respectively.  On October 11, 2006 the Company received stockholder approval to increase the authorized shares from 80,000,000 to 120,000,000.  Upon re-valuation at October 11, 2006, the value of the warrants at October 11, 2006, was reclassified to equity at fair value in accordance with the provisions of EITF 00-19.

Through May 18, 2007 the Company accounted for the conversion options using the fair value method at the end of each quarter, with the resultant gain or loss recognition recorded against earnings. The conversion option was valued at May 18, 2007, the effective date of the amendment to the convertible debenture to remove the cash settlement option, using the Black-Scholes valuation model, applying the actual common stock price on May 18, 2007 ($0.53), applicable volatility rate (97 %), and the period close risk-free interest rates (4.82%) for the instrument’s remaining contractual lives of 2.24 for the First Tranche and 2.41 years for the Second Tranche.

At the initial recording of the First Tranche, the sum of the fair values of the conversion feature and the warrants, $5,714 in the aggregate, exceeded the net proceeds of $5,615.  The difference of $99 was charged to the provision for fair value adjustment, upon issuance during the third quarter of 2006.  Accordingly, the Company recorded a discount equal to the face value of the convertible debenture, which will be amortized using the effective interest rate method over the three year term.  The common stock issued as fees in the transaction was recorded at a net value of $0, as there was no residual value remaining.

At October 13, 2006, in connection with the $5,000 Second Tranche, the convertible feature of the convertible debenture was recorded as a derivative liability of $3,449 and the warrants were recorded as additional paid in capital of $230.

For the Second Tranche issuance on October 13, 2006, the Company recorded a discount of $3,979, which is being amortized using the effective interest method over the three year term.

During the years ended December 31, 2007 and 2006, $3,649 and $1,350 respectively in face value of the convertible debentures was converted, resulting in the issuance of 12,086,946 and 1,146,279 shares of common stock respectively.  As a result of the amortization and conversion, $4,126 of the discount on the convertible debenture has been charged to discount amortization and approximately $1,048 and $1,020, respectively of the conversion option on the convertible debt was reclassified upon conversion to additional paid in capital during the years ended December 31, 2007 and 2006 respectively.

At December 31, 2007, the balances of the convertible debentures and the offsetting related discount were $6,001 and $4,499, respectively.

For the year ended December 31, 2007, the Company recorded total discount amortization of $4,126and fair value adjustments of the conversion feature derivative liability and the warrants derivative liability resulted in a gain of $1,661, related to this private placement.

Liquidated Damages

                The Company accounts for potential registration rights liquidated damage obligations in accordance with FSP EITF 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”). The Company adopted this pronouncement during the quarter ended March 31, 2007. The adoption of FSP EITF 00-19-2 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Revenue Recognition.

Revenue is recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, the collectibility is reasonably assured, and the delivery and acceptance of the equipment has occurred or services have been rendered.  Management exercises judgment in evaluating these factors in light of the terms and conditions of its customer contracts and other existing facts and circumstances to determine appropriate revenue recognition. Due to the Company’s limited commercial sales history, its ability to evaluate the collectibility of customer accounts requires significant judgment. The Company continually evaluates its equipment customer and service customers’ accounts for collectibility at the date of sale and on an ongoing basis.

For the year ended December 31, 2005, and through mid February 2006, the Company had only one customer for the purchase of its product and the agreement with this customer included several elements relevant to revenue recognition including: (a) the customer had no general right to return the product;  (b) the customer earned

F-16

warrants upon the purchase of significant video telephony units and the value of these warrants would result in a reduction of recognized revenue (the value of these warrants has been routinely monitored by the Company and is currently deemed to be insignificant, however, should the value of these warrants become material an offset would be made against revenues); (c) penalties were payable to the customer if certain excessive field failure rates are exceeded;  (d) the Company and the customer shared in the benefit achieved by product cost reductions; (e) penalties were payable to the customer if the Company failed to deliver shipments on a timely basis; (f) the Company extended to the customer a limited product warranty for a term not to exceed three years (the Company maintains a warranty reserve based upon the percentage of product sales consistent with industry comparable failure rates and the warranty period provided by the agreement).  Beginning in mid February 2006, as a result of the termination of the General Instrument marketing and distribution agreement, the Company began selling its products to multiple customers and now evaluates its revenue recognition policy on a customer by customer basis.

Revenues are also offset by a reserve for any price refunds and consumer rebates consistent with the EITF Issue 01-9, “Accounting for Consideration Given by a Vendor to a Customer.”

                During the year ended December 31, 2007, the Company shipped approximately 400 units, with a sales value of $128 to customers with a right of return.  These customers may exercise their right of return only if they do not sell the units to their respective customers.  Revenue and cost for these units were deferred in accordance with SFAS 48 “Revenue Recognition when a Right of Return Exists.”

As part of ending the Company’s agreement with General Instrument, and in anticipation of WorldGate inventory requirements as a result of taking full responsibility for product distribution, WorldGate negotiated the right to buy back about two-thirds of the units sold to General Instrument, valued at approximately $2,765 (based upon the original sales price to General Instrument), for approximately $1,064. This is less than half of what it would cost the Company to purchase the same inventory from its manufacturing sources.  As a result the Company recorded a reserve for returns and reduced revenue in the amount of approximately $2,310, during the fourth quarter of 2005. In addition, the Company has recorded no revenue for units shipped to General Instrument in the first quarter 2006 and for the year ended December 31, 2006 has recorded a gain on termination of this agreement of approximately $1,843 as a result of the lower purchase price of the inventory repurchased from General Instrument ($1,393, net of the cost of rework for rebranding the product and the adjustment of the inventory to its current replacement value) and reversal of the product refund program reserve ($212) as well as an adjustment of the warranty reserve for products repurchased ($233), both of which resulted from termination of the Company’s agreement with General Instrument.

In the third quarter of 2007, the Company began to ship its video phone product to its VRS customer.  As part of its June 2007 agreement with this customer, the Company began to recognize product revenue at the time of shipment of its video phone. In addition, the Company also began to receive service fee revenues based on a percentage of the fees earned by Aequus and for which the customer has received service.. The Company recognizes this service fee revenue upon confirmation from the VRS customer of the fees they have earned.  The Company also receives service fee revenues from end consumers which is recognized after the service has been performed.  In addition, the Company had provided non-recurring engineering (NRE) services to Aequus valued at $1,354 for the year ended December 31, 2007. These services are subject to agreed arbitration between the parties. As such the Company did not recognize revenues related to these NRE services during the year ended December 31, 2007 but rather will treat similar to a gain contingency.

Cost of Revenues

Cost of equipment product revenues reflects primarily the purchase of video phones from the Company’s supplier Mototech.  The components and raw materials used in the Company’s Ojo video phone product are generally available from a multitude of vendors and are sourced based, among other factors, on reliability, price and availability.

Engineering and Development Costs

Engineering and development costs are expensed as incurred. Engineering and development were $6,238 and $5,315 for the years ended December 31, 2006 and 2007, respectively.

Advertising Costs

Advertising costs, included in sales and marketing expense, are expensed in the period incurred. Advertising costs were $1,036 and $297 for the years ended December 31, 2006 and 2007, respectively.

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Income Taxes

Provision for income taxes is determined based on the asset and liability method. The asset and liability method provides that deferred tax balances are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities or assets at the end of each period are determined using the tax rate enacted under the current tax law. The measurement of net deferred tax assets is reduced by the amount of any tax benefits that, based on available evidence, are not expected to be realized, and a corresponding valuation allowance is established.  The Company has recorded a full valuation allowance against its net deferred tax assets at December 31, 2006 and 2007 due to the uncertainty regarding whether the deferred tax asset will be realized.

In June 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes—A Interpretation of FASB Statement No. 109.(“FIN 48”). FIN 48 establishes for all entities a minimum threshold for financial statement recognition of the benefit of tax positions, and requires certain expanded disclosures. FIN 48  is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The adoption of FIN 48 did not have a material effect on the Company’s consolidated financial position or results of operations or cash flows (See Note 7). As part of this assessment the Company completed preliminary analyses under Section 382 of the Internal Revenue Code.  Generally section 382 limits the utilization of an entity’s net operating loss carryforward upon a change in control. Based on this analysis it was determined that it was more likely than not that a change of control pursuant to Section 382 has not occurred. Future issuances of common stock may affect this analysis which might cause limitation in the Company’s ability to utilize net operating loss carryforwards.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (Revised 2004), “Share-Based Payment,” (SFAS No. 123(R)) using the modified-prospective-transition method which requires us to recognize compensation expense on a prospective basis.  SFAS No. 123(R) requires that all stock based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award.  Under this method, in addition to reflecting compensation for new share-based awards, expense is also recognized to reflect the remaining service period of awards that had been included in pro-forma disclosure in prior periods.  SFAS No. 123(R) also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating inflows.  As a result, the Company’s net loss before taxes for the year ended December 31, 2006 and 2007 included approximately $837 ($0.02 per share and  $1,075 ($0.02 per share), of stock based compensation. The stock based compensation expense is included in general and administrative expense in the consolidated statements of operations.

Consistent with the requirements of SFAS 123(R), the Company has selected a “with-and-without” approach regarding the accounting for the tax effects of share-based compensation awards.  This approach is consistent with intraperiod allocation guidance in SFAS No. 109, “Accounting for Income Taxes”, and EITF Topic D-32, “Intraperiod Tax Allocation of the Tax Effect of Pretax Income From Continuing Operations.”

Net Loss Per Share (Basic and Diluted)

Basic and diluted net loss per common share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period.  The calculation of diluted net loss per common share excludes potential common shares if the effect is antidilutive.  Potential common shares comprise shares of common stock issuable upon the exercise of stock options and warrants and the conversion of preferred stock and convertible debt.  The potential common shares that were excluded from loss per share for the years ended December 31, 2006 and 2007 totaled 20,549,235, and 67,804,376, respectively.  In the period from December 31, 2007 through April 16, 2008 the Company issued 840,571 additional shares increasing its total outstanding shares to 57,788,747.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, embedded and free standing derivatives, accounts receivable and accounts payable. The book value of cash and cash equivalents, accounts receivable, and accounts payable is considered to be representative of their fair value because of their short term maturities.  The carrying value of the Convertible Debentures Payable on the balance sheet as of December 31, 2006 and 2007 approximates fair value as terms approximate those currently available for similar instruments.  Embedded derivatives reported on the balance sheet as of December 31, 2006 are presented as a liability measured

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at fair value using the Black-Scholes pricing model (refer to Note 9, “Redeemable Preferred Stock” and Note 2, “Accounting for Secured Convertible Debentures”).  There were no embedded derivatives reported on the balance sheet as of December 31, 2007.  Free standing warrant derivative liabilities on the balance sheet at December 31, 2006 and 2007 are measured at fair value using the Black Scholes model.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents and accounts receivable. The Company has its cash and cash equivalents placed with high quality, creditworthy financial institutions. As part of its cash management process, the Company performs periodic evaluation of the relative credit standing of these institutions.

In 2006 and 2007, accounts receivable primarily consisted of receivables from the sales of the Company’s video phones to retailers, distributors, service providers and from its web site.  As a result of the credit worthiness and payment history related to these sales, no allowance for potential credit losses has been recorded as of December 31, 2007.

Sales to major customers, in excess of 10% of total revenues and accounts receivables, were as follows for each of the years ended December 31:

	Sales				Accounts Receivable
Customer	2006		2007		2006		2007
A	0		63	%	0		82	%
B	0	(1)	0		76	%(1)	0
C	4	%	2	%	3	%	13	%
D	25	%	0		0		0
E	14	%	0		0		5	%

(1) Shipments totaling $778 were deferred at December 31, 2006 pursuant to the guidance of SFAS 48. Substantially all of the units were returned to the Company during the year ended December 31, 2007 (Note 3).

As of December 31, 2007, Mototech is the sole volume manufacturer of Ojo video phones to the Company.  A formal relationship had been established with Mototech in 2003.  Mototech is a Taiwanese manufacturer and distributor of high performance, high speed data and computer networking products. The components and raw materials used in the Company’s Ojo video phone product are generally available from a multitude of vendors and are sourced based, among other factors, on reliability, price and availability.

At December 31, 2007 and 2006, the Company has long-lived assets, with a net book value total of $626, located in the United States, and $171 located in Taiwan, R.O.C.  At December 31, 2006, the Company has long-lived assets, with a net book value total of $951, located in the United States, and $315 located in Taiwan, R.O.C.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Adoption is required for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption of SFAS 157 is encouraged. The Company is currently evaluating the expected effect of SFAS No.157 on its consolidated financial statements and is currently not yet in a position to determine such effects.

In September 2006, FASB ratified EITF No. 06-1, “Accounting for Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment Necessary for an End-Customer to Receive Service from the Service Provider”(“EITF 06-1”). This guidance requires the application of EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer” (“EITF 01-9”), when consideration is given to a reseller or manufacturer for benefit to the service provider’s end customer. EITF 01-9 requires the consideration given be recorded as a liability at the time of the sale of the equipment and, also, provides guidance for the classification of the expense. EITF 06-1 is effective for the first annual reporting period beginning after June 15, 2007. The Company has not yet assessed the impact of EITF 06-1 on the Company’s consolidated financial statements.

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In December 2006, the FASB issued FASB Staff Position (“FSP”) EITF 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”) which specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.”  Adoption of FSP EITF 00-19-02 was required for fiscal years beginning after December 15, 2006. The adoption of FSP EITF 00-19-02 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value.  The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  Adoption is required for fiscal years beginning after November 15, 2007.  Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No.157. The Company is currently evaluating the expected effect of SFAS No.159 on its consolidated financial statements and is not yet in a position to determine such effects.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which replaces SFAS No. 141, “Business Combinations.” SFAS No. 141R establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including noncontrolling interests, contingent considerations, and certain acquired contingencies. SFAS No. 141R also requires acquisition-related transaction expenses and restructuring costs to be expensed as incurred rather than capitalized as a component of the business combination. SFAS No. 141R will be applicable prospectively to business combinations for which the acquisition date is on or after January 1, 2009. SFAS No. 141R would have an impact on accounting for any businesses acquired after the effective date of this pronouncement.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary (previously referred to as minority interests).  SFAS 160 also requires that a retained noncontrolling interest upon the deconsolidation of a subsidiary be initially measured at its fair value. Upon the adoption of SFAS No.160, the Company would be required to report any noncontrolling interests as a separate component of consolidated stockholders’ equity. The Company would also be required to present any net income allocable to noncontrolling interest and net income attributable to the stockholders of the Company separately in its consolidated statements of operations. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2009. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS No. 160 shall be applied prospectively. SFAS No. 160 would have an impact on the presentation and disclosure of the noncontrolling interests of any non-wholly owned business acquired in the future.

In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”). SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14, Share-Based Payment of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of the expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007. The Company currently uses the “simplified” method to estimate the expected term for share option grants as it does not have enough historical experience to provide a reasonable estimate. The Company will continue to use the “simplified” method until it has enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. SAB 110 will be effective for the Company on January 1, 2008.

 In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133”, which amends and expands the disclosure requirements of SFAS 133 to require qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement will be effective for the Company beginning on January 1, 2009. The adoption of this statement will change the disclosures related to derivative instruments held by the Company.

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3.  Inventory

The Company’s inventory as carried in its financial statements is all finished goods inventory.  The Company orders, purchases and receives finished, completed, boxed and ready for sale video phone products directly from its supplier.  The Company makes no subsequent hardware changes to the products.  The Company does not maintain work in process inventory, component raw materials or supplies, except for very minimal quantities for repair work.  The Company does not include tooling, deferred start-up or general and administrative costs in its inventory costs.  The Company also does not maintain specific inventory for any specific long-term contracts or programs.  The Company tracks and removes inventory only under the “first-in, first-out method” and prices it based upon the Company’s actual cost unless adjustments are required for certain costs, obsolescence or for market valuations.  During the years ended December 31, 2006 and 2007, the Company reduced inventory by $585 and $293, respectively, for such adjustments.

Through December 31, 2007 the Company arranged to have a total of 3,650 of the reported units previously delivered to a service provider, with a value of $763, returned to its inventory, which had no impact on the Company’s results of operations as these units were fully reserved for at the point of sale.

4.  Property and Equipment

Property and equipment consist of the following at December 31, 2006 and 2007:

	2006			2007
Computer equipment and system packages	$	1,247		$	1,363
Furniture and fixtures	964			966
Hardware, software and tooling	1,328			1,347
Leasehold improvements	955			951
	4,494			4,627
Accumulated depreciation and amortization	(3,228		)	(3,830		)
Property and equipment, net	$	1,266		$	797

Depreciation and amortization on property and equipment in the amount of $720 and $602 was recorded for each of the years ended December 31, 2006 and 2007, respectively.

5.  Accrued Expenses

The Company’s accrued expenses consisted of the following as of December 31, 2006 and 2007:

	2006		2007
Inventory purchases	$	0	$	802
Interest on Convertible Debt	194		658
Marketing and Advertising expenses	656		16
Other	390		540
Total	$	1,240	$	2,016

6.  Warranty Reserve

 The Company provides a warranty covering defects arising from the sales of its video phone product. This warranty is limited to a specific time period. As of December 31, 2007 and 2006, the Company has a reserve of $49 and $85, respectively that is based on expected and historical loss rate as a percentage of product sales.  Warranty costs are charged to cost of revenues when they are probable and reasonably estimable. While the Company believes its estimate at December 31, 2007 is reasonable and adequate, it is subject to change based on its future sales and experience, which may require an increase or decrease in its reserve.

During the years ended December 31, 2007 and 2006, the Company reduced its warranty reserve by $36 and $18, respectively.  The adjustment in 2007 reflects warranty claims of $49, increases of $49 for additional warranty costs from increased product sales and $91 of expired warranties based on the term of warranty issued.  The adjustment in 2006 reflects a $224 increase to the gain recorded from the termination on February 17, 2006 of the Company’s agreement with General Instrument, as a result of the elimination of the warranty exposure for products previously sold and then repurchased from General Instrument under this termination, warranty claims of $52 in 2006 and increases of $25 for additional warranty costs from increased product sales in 2006.

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7.  Income Taxes

The significant components of the net deferred tax asset at December 31, 2006 and 2007 are as follows:

	2006			2007
Federal tax loss carryforward	$	76,098		$	78,374
State tax loss carryforward	5,036			5,635
Property and equipment	559			1,255
Research and experimentation credit	3,624			3,961
Officers’ compensation, accrued expenses and other	834			1,084
Inventory	608			582
	86,759			90,891
Valuation allowance	(86,759		)	(90,891		)
	$	0		$	0

The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended December 31, 2007 an 2006:

	2006		2007
U.S. Federal statutory rate	(34	)%	(34	)%
Permanent items	3		15
Increase in valuation allowance	31		19
Effective rate	0	%	0	%

A valuation allowance was established against the Company’s net deferred tax asset due to the Company’s lack of earnings history and, accordingly, the uncertainty as to the realization of the asset. A portion of the gross deferred asset and related valuation allowance is attributable to stock option expense. To the extent that such assets are realized in the future, the benefit is applied to equity.

At December 31, 2007, the Company had a net operating loss carryforward of approximately $230,512 for federal tax purposes, expiring between 2012 and 2027, if not utilized. The net operating loss carryforward for state tax purposes is approximately $182,993, which will expire through 2027. These carryforwards may be applied as a reduction to future taxable income of the Company, if any. The state net operating loss carryforwards are limited by state tax law to a maximum utilization of $2,000 per year per entity for losses generated in 2006 and prior and $3,000 per year per entity for losses generated in 2007 and beyond. Due to the annual limitation on state net operating loss utilization the related deferred tax asset is reflected at the annual limits to date of expiration of $56,410. The Company also has federal research and experimentation credit carryforwards of approximately $3,961.  All state research and experimentation credits totaling $23 were refunded during 2006 and no carryovers remain. The federal research and experimentation credit carryforwards expire between 2012 and 2027. The Company’s ability to utilize its net operating loss carryforwards and credit carryforwards may be subject to annual limitations as a result of prior or future changes in ownership and tax law as defined under Section 382 of the Internal Revenue Code of 1986. Such limitations are based on the market value of the Company at the time of ownership change multiplied by the long-term exempt rate supplied by the Internal Revenue Service.

The Company has adopted the provisions of  FIN 48 on January 1, 2007.  FIN 48 provides guidance on recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

The Company has identified its federal tax return and its state tax return in Pennsylvania as “major” tax jurisdictions, as defined.  Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.  The Company’s evaluation was performed for tax years ended 2004 through 2007, the only periods subject to examination.  The Company believes that it is more likely than not, that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.  In addition, the company did not record a cumulative effect adjustment related to the adoption of FIN 48.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before income taxes.  Penalties are recorded in other expense and interest paid or received is recorded in interest expense or interest income, respectively, in the statement of operations.  There were no amounts accrued for penalties or interest as of or during year ended December 31, 2007.  The Company does not expect its unrecognized tax benefit position to change during the next twelve months.  Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

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8.  Secured Convertible Debentures

On August 11, 2006 and October 13, 2006 the Company issued to an institutional investor convertible debentures in the aggregate principal amount of $11,000 (for more details, refer to Note 2).  These convertible debentures have a maturity of three years from the date of issuance, an interest rate of 6% per annum, and are convertible at the option of the investors into WorldGate common stock at a conversion price equal to the lesser of $1.75 per share or 90% of the average of the five lowest daily volume weighted average closing prices (“VWAP”) of the common stock during the fifteen trading days immediately preceding the conversion date (subject to adjustment in the event of stock dividends and splits and certain distributions to stockholders, fundamental transactions, and future dilutive equity transactions).  Interest is payable at maturity, and may be paid in cash or shares of the Company’s common stock.  The Company recorded interest and accrued interest expense of $194, and $464 for the years ended December 31, 2006 and 2007, respectively.

The convertible debentures provide that the Company has the right to redeem all or any portion of the principal amount of the debentures in cash at any time upon not less than four business days notice if the closing price of its stock is less than $1.75 per share. Such early redemption will, however, require the Company to pay a 10% prepayment premium. In addition, without any prepayment premium, the Company has the right to force the holder to convert a maximum of $500,000 of the aggregate principal amount of the debentures in any thirty day period if for five consecutive trading days the VWAP of its common stock is above $1.925 per share but less then $3.50 per share and providing the daily trading volume exceeds 200,000 shares for these five days, and certain other conditions are met. If the VWAP of the Company’s common stock is greater than $3.50 per share for 30 consecutive trading days, the daily trading volume exceeds 250,000 shares for five days prior, and if certain other conditions are met, the Company can also force the holder to convert all or any portion of the outstanding principal and interest into shares of its common stock without any prepayment premium.

On February 5, 2008 February 13, 2008, February 15, 2008, and April 8, 2008 the Company received notices from YA Global, holder of the Company’s convertible debentures, claiming that the Company was in default of the terms of the debentures for stating its intent to wind down its business, failure to maintain current financial statements in the registration statement relating to the sale of the Company’s common stock issuable upon conversion of one of those debentures, to comply with a covenant to their satisfaction that provided for the disclosure of information they considered material,  and entering into the agreement with Aequus Technologies, and as a result YA Global was exercising its right to accelerate payment of the full principal amount of the debentures. While the registration statement was not effective as of December 31, 2007, the underlying alleged default with respect to the registration statement was in any event cured by the amendments to Rule 144 that became effective on February 15, 2008, obviating the need to maintain that registration statement. The Company has notified YA Global that it disputes these claims and whether they constitute a continuing event of default under the debentures. The Company has also notified YA Global that their right to accelerate payment is also disputed. The Company is working with YA Global in an effort to settle their disputes regarding the claimed defaults and acceleration.  Although the Company disputes YA Global’s claims of default, and does not believe YA Global has any basis to accelerate payments on the debenture, the Company has reclassified the YA convertible debenture to a current liability on the balance sheet, solely in light of the existence of the alleged claims.

During the year ended December 31, 2007, $3,650 in face value of the convertible debentures was converted, resulting in the issuance of 12,086,945 shares of common stock.  As a result of amortization and the conversions, $4,126 of the discount on the convertible debenture has been charged to discount amortization.

At December 31, 2007, the balances of the convertible debentures and the offsetting related discount were $6,001 and $4,499, respectively.

8.  Stockholders’ Equity

Common Stock

On October 11, 2006 the Company had received stockholder approval to increase the authorized shares from 80,000,000 to 120,000,000.  On December 13, 2007 the Company received stockholder approval to increase the authorized common shares from 120,000,000 to 200,000,000.

The Company issued 375,737 shares of its common stock (valued at market price on date of grant) and 100,000 options (valued using Black Scholes model) to a consulting firm associated with the marketing of the Company’s video phone product. This issuance resulted in non-cash based consulting fees of $300 and is included in sales and marketing expense in the accompanying consolidated statements of operations.

F-23

Preferred Stock

The Company has the authority to issue from time to time up to an aggregate of 13,500,000 shares of preferred stock in one or more classes or series and to determine the designation and the number of shares of any class or series as well as the voting rights, preferences, limitations and special rights, if any, of the shares of any class or series. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of the Company. At December 31, 2006 and 2007 there were 166 and 0 shares, respectively, of redeemable preferred stock outstanding.

Redeemable Preferred Stock

In June 2004, WorldGate completed a private placement of preferred stock. 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 scheduled payments of one third due after 18 months, one half of the remainder due after 24 months and the balance due after 36 months, and may be redeemed at maturity in cash or, at the Company’s option, subject to certain conditions that may not be solely under the control of the Company, through the issuance of the number of shares of common stock determined by dividing the liquidation preference of the preferred shares by the then average market price over the ten consecutive trading days prior to the date of conversion.  If the effectiveness of the registration statement lapses, the Company ceases to be listed on certain specified exchanges and trading in the Company’s stock is suspended or a change in control occurs with respect to the Company, the Company may be required to settle redemption of the preferred stock with cash instead of its common shares.  Furthermore, since the market price of the Company’s common stock cannot be predicted, the actual number of shares of the Company’s common stock that will be required if a redemption is made through the issuance of common stock also cannot be predicted. The private placement includes numerous provisions intended to protect these institutional investors including a cash payment penalty of 1.0% per month for unredeemed preferred shares once registration of the shares lapse and until the registration again becomes effective (see Note 2).  On June 23, 2007, the holder converted the remaining 166 shares of preferred stock into 326,471 shares of common stock.  As a result of this conversion, the conversion option liability was reclassified to equity.

Of the 7,550 preferred shares issued under this private placement, all shares have been redeemed as of December 31, 2007.

Warrants

In August 2000, the Company issued warrants to the TVGateway partners as part of the TVGateway Joint Venture. These warrants may be exercised to purchase in the aggregate up to 1,500,000 shares of common stock at an exercise price of $24.78 and up to 500,000 additional shares of common stock at an exercise price of $12.39. The warrants were subject to vesting at varying rates based on the deployment of the Company’s discontinued Internet TV service on each operator’s digital cable systems. On September 30, 2003, 1,000,000 warrants were cancelled. These warrants expired on July 24, 2007.

In November 2000, the Company entered into a deployment agreement with AT&T Broadband to deploy the Company’s interactive services to AT&T digital customers in Cedar Falls and Waterloo, Iowa and Tacoma, Washington. As part of this agreement, the Company issued warrants to AT&T to purchase up to 1,000,000 shares of the Company’s common stock at a per share exercise price of $16.02. The warrants are subject to vesting at varying rates based on the deployment of the Company’s Internet TV service on AT&T’s digital cable systems. These warrants expired on November 12, 2007.

In connection with the December 2003 and January 2004 private placements, the Company issued 1,020,000 warrants and 10,000 additional investment rights to purchase shares of common stock. For the December 2003 transactions the warrants had an exercise price of $1.00 per share and the additional investment rights were priced at $0.80 per share. For the January 2004 transaction the warrants had an exercise price of $1.875 per share and the addition investment rights were priced at $1.50 per share. In addition, if the selling security holders exercise their additional investment rights, the Company will be obligated to issue additional warrants to purchase its common stock at an exercise price of $1.00 per share and $1.875 per share, respectively, for the December 2003 and the January 2004 transactions.

In connection with the Development and Distribution Agreement with General Instrument, the Company issued warrants in April and September 2004 to General Instrument to purchase 600,000 shares of its common stock, 300,000 at an exercise price of $1.4375 per share with the execution of the agreement in April 2004, and 300,000 at an exercise price of $1.75 upon the delivery to General Instrument of acceptable prototypes for the product.  These warrants expire on April 27, 2009 and September 21, 2009, respectively and were fully vested on their date of grant.

F-24

In connection with the June 2004 private placement  the Company issued five-year warrants to purchase up to 803,190 shares of its common stock at an exercise price of $2.69 per share and five-year warrants to purchase up to 803,190 shares of its common stock at an exercise price of $3.14 per share. The investors also received an additional investment right, for a limited period of time, to purchase 1,606,383 additional shares of common stock shares at $3.14 a share. This exercise price of the warrants is subject to adjustment if, at any time after the date the warrants were issued, the Company issues or sells, or is deemed to have issued or sold, any shares of the Company’s common stock for per share consideration less than the exercise price of the warrants on the date of such issuance or sale.  Accordingly, the number of common shares that will be issued upon the exercise of the warrants cannot be predicted.  As of December 31, 2006, 125,000 warrants exercisable at $2.69 had been exercised and 51,915 warrants exercisable at $3.14 had been exercised.  All of the additional investment rights had been exercised as of December 31, 2006. Based on anti-dilution provisions contained within this private placement the $2.69 warrants were modified to an exercise price of $2.35 as of December 31, 2006 and the number of outstanding warrants were increased by 98,164 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $3.14 warrants were also modified to an exercise price of $2.70 as of December 31, 2006 and the number of outstanding warrants were increased by 120,307 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $2.69 warrants were modified to an exercise price of $0.69 as of December 31, 2007 and the number of outstanding warrants were increased by 1,978,070 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $3.14 warrants were also modified to an exercise price of $0.76 as of December 31, 2007 and the number of outstanding warrants were increased by 2,332,045 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $2.69 warrants were further modified to an exercise price of $0.23 as of March 31, 2008 and the number of outstanding warrants were increased by an additional 5,202,945 to a total of 7,181,914 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.  Based on anti-dilution provisions contained within this private placement the $3.14 warrants were also further modified to an exercise price of $0.25 as of March 31, 2008 and the number of outstanding warrants were increased by an additional 6,242,552 to a total of 8,574,597 related to the issuance of convertible debentures and warrants in August 2006 and October 2006 and as a result of the conversion price related to these issuances.

In December 2004, WorldGate completed a private placement of 208,333 shares of its common stock to K.Y. Chou, President and General Manager of Mototech at a sales price of $2.40 per shares, which resulted in additional gross proceeds to the Company of $500.  In connection with this placement the Company granted warrants to Mr. Chou to purchase up to 62,500 shares of common stock at an exercise price of $2.88 per share. These warrants expire on December 15, 2009 and were fully vested on their date of grant.

In August 2005, the Company completed a private placement for $17,500 of its common stock and warrants with several institutional investors. The Company issued 4,666,664 shares of its common stock at $3.75 per share to the participating investors. The Company also issued five-year warrants to purchase a total of 1,671,947 shares of its common stock: 1,633,333 shares to the investors at an exercise price of $5.00 per share, and 38,614 shares to the placement agent at an exercise price of $4.53 per share. The investors also received an additional investment right, for a period of 60 days from the time the shares become registered, to purchase 1,554,000 additional shares of common stock at $4.12 per share. The accounting for these warrants and investment rights is established by analogy to APB No. 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” which addresses detachable stock purchase warrants issued in conjunction with convertible debt and prescribes that such warrants be accounted for as additional paid in capital measured at fair value. The private placement includes numerous provisions intended to protect these institutional investors including a cash payment penalty of 1.5% per month for the period above 120 days from the effective date of the agreement that the shares in the transaction fail to be registered. The Registration Statement covering the shares under this private placement was not declared effective until June 1, 2006.  Until such time as the shares were registered the Company was subject to the penalty provision under this private placement. For the years ended December 31, 2006 and 2007 the Company recorded and expensed related penalties of $1,114 and $0, respectively. The related unpaid penalties accrued as of December 31, 2006 and December 31, 2007 was $157.  On July 25, 2006, the Company amended the terms of the additional investment right that was granted to an investor as part of the August 2005 private placement, with respect to a portion of shares of common stock purchasable thereunder and agreed to apply $158 of accrued penalties towards the exercise price of such amended additional investment right, for the purchase of 129,950 shares of common stock. The penalties had accrued with respect to the Company’s inability to register the shares acquired by such investor in the private placement within 120 days of the transaction.  In consideration for this amendment

F-25

and application of the exercise proceeds the investor agreed to forego any cash payment of the penalties other than as available through the proceeds of the exercise of the amended investment right and to grant to the Company a release of all claims relating to the late registration of the private placement shares, other than the aforesaid penalties.  The amended additional investment right provides that the investor thereof may purchase the 129,950 shares of common stock for a period of 760 days beginning June 1, 2006 for an exercise price of $1.515 per share.  The terms of the additional investment rights with respect to the remaining 1,424,050 shares of common stock purchasable thereunder remain unchanged.  On July 26, 2006 this investor exercised the additional investment right for 129,950 shares. On July 31, 2006 the amended additional investment right with respect to the remaining 1,424,050 shares of common stock expired.  On December 12, 2006 the Company amended the terms of the warrants that were granted to an investor as part of the August 2005 private placement, with respect to a portion of shares of common stock purchasable thereunder and agreed to apply $315 of accrued penalties towards the exercise price of such amended warrants, for the purchase of 279,255 shares of common stock. In addition, the exercise price of 47,412 of the warrants was changed to $1.41 per share.  The penalties had accrued with respect to the Company’s inability to register the shares acquired by such investor in the private placement within 120 days of the transaction.  In consideration for this amendment and application of the exercise proceeds the investor agreed to forego any cash payment of the penalties other than as available through the proceeds of the exercise of the amended warrant and to grant to the Company a release of all claims relating to the late registration of the private placement shares, other than the aforesaid penalties.  The amended warrants provide that the investor thereof may purchase the 326,667 shares of common stock for a period of 1,330 days beginning December 12, 2006 for an exercise price of $1.41 per share.  The terms of the warrants with respect to the remaining shares of common stock purchasable thereunder remain unchanged.  On December 19, 2006 this investor exercised the warrants for the purchase of 279,255 shares.

On August 11, 2006 the Company completed a private placement with an institutional investor of a convertible debenture in the aggregate principal amount of up to $11,000.  As part of this private placement the Company issued five-year warrants to purchase a total of up to 2,595,000 shares of WorldGate common stock, with 1,145,000 of the warrants having an exercise price of $1.85 per share, 1,100,000 of the shares having an exercise price of $2.35 per share and 350,000 warrants having an exercise price of $2.60 per share (with 190,909 of these warrants issued at the initial closing and 159,091 warrants issued at the closing of the second tranche of funding on October 13, 2006).

A summary of the Company warrant activity for the year ended December 31, 2007, is as follows:

	Warrants		Weighted Average Exercise Price			Weighted Average Remaining Contract Life
Outstanding, January 1, 2007	7,277,378		$	4.74
Granted	8,304,582		0.65
Exercised	0		0
Cancelled / Forfeited	(2,347,936	)	(8.42		)
Outstanding, December 31, 2007	13,234,024		$	2.43		2.66
Exercisable, December 31, 2007	13,234,024

Stock Option Plan

In December 1996, the Company adopted the 1996 Stock Option Plan (“1996 Plan”). This plan provides for the granting of stock options to officers, directors, employees and consultants. Grants under this plan may consist of options intended to qualify as incentive stock options (“ISOs”), or nonqualified stock options that are not intended to so qualify (“NQSOs”). The option price of any ISO will not be less than the fair market value on the date the option is granted (110% of fair value in certain instances). The option price of NQSOs may be greater than, equal to, or less than the fair market value on the date the option is granted. The 1996 Plan originally authorized a maximum of 933,333 shares of common stock.

In May 1999 and May 2000, the Board increased the total number of shares of common stock available under the 1996 Plan to 1,600,000 and 3,200,000 shares, respectively. In October 2000, the Company’s stockholders approved these increases. In February 2001, the Board approved an automatic annual increase of shares reserved under the 1996 Plan in an amount equal to the lesser of 4% of the then outstanding shares of the Company’s common stock or 1,000,000 shares. In October 2001, the Company’s stockholders approved this increase.

F-26

In October 2004, the Company’s stockholders approved the 2003 Equity Incentive Plan (“2003 Plan”). This plan is intended to replace the 1996 Plan for new grants. No additional shares were reserved for the new plan but rather all available shares under the 1996 Plan were made available for the new plan. As with the 1996 Plan, the 2003 Plan includes the same automatic annual increase in the number of shares reserved for use with the plan equal to the lesser of 4% of the then outstanding shares of the Company’s common stock or 1,000,000 shares. In addition to ISOs and NQSOs, the new plan also provides for performance based awards and restricted stock.

Both the 1996 Plan and its successor, the 2003 Plan are administered by a committee of the Board of Directors. The committee determines the term of each award, provided, however, that the exercise period may not exceed ten years from the date of grant, and for ISOs, in certain instances, may not exceed five years. The options granted under both Plans vest ratably over a four-year period from the date of grant.  As of December 31, 2006 there were 2,091,682 shares available to grant under the Plans and 4,913,689 options outstanding.  As of December 31, 2007 there were 1,197,029 shares available to grant under the Plan and 6,808,342 options and restricted shares outstanding.

Options granted during the year ended December 31, 2007 vest over four years and expire in ten years from the date of granted under the Plan. The weighted-average fair values of the options granted were $1.15, and $0.33 per option during the years ended December 31, 2006 and 2007, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes fair value option valuation model. The following weighted-average assumptions were used for grants in 2006 and 2007, respectively: expected volatility of 91.7%, and 85%; average risk-free interest rates of 4.62% and 4.33%; dividend yield of 0%; and expected lives of 6.2 and 6.2 years.

A summary of the Company’s stock plan is presented below:

	Stock Options		Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding, January 1, 2006	4,481,015		$	1.94
Granted	529,523		$	1.53
Exercised	(56,857	)	$	0.93
Cancelled/forfeited	(39,992	)	$	3.08
Outstanding, December 31, 2006	4,913,689		$	1.90	$	1,540,132
Granted	1,581,500		$	0. 33
Exercised	0		$	0
Cancelled/forfeited	(587,847	)	$	1.35
Outstanding, December 31, 2007	5,907,342		$	1.53	$	0
Exercisable, December 31, 2007	3,964,511		$	1.81	$	0

As of December 31, 2007, there was $1,067 of total unrecognized compensation arrangements granted under the Plan. The cost is expected to be recognized through 2011.

The following table summarizes information about stock options outstanding at December 31, 2007:

	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Shares	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
$0.00 - $0.39	1,474,613	8.86	$	0.31	290,613	$	0.37
$0.40 - $0.59	1,116,000	6.02	0.52		1,036,000	0.52
$0.60 - $0.89	299,492	6.94	0.60		299,492	0.60
$0.90 - $1.34	729,250	5.97	1.06		589,250	1.06
$1.35 - $2.01	700,293	6.46	1.61		439,935	1. 68
$2.02 - $3.02	1,033,332	5.05	2.56		880,934	2.57
$3.03 - $4.53	376,412	6.38	4.23		271,287	4.29
$4.54 - $6.80	102,848	4.92	5.91		81,898	6.07
$6.81 - $10.20	40,000	3.13	8.25		40,000	8.25
$15.31 - $22.95	31,046	2.10	20.44		31,046	20.44
$22.96 - $34.43	4,056	2.51	28.60		4,056	28.60
	5,907,342	6.61	$	1.53	3,964,511	$	1.81

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Cash received from option exercises for fiscal years 2006,and 2007 was $12 and $0, respectively. The Company did not realize an actual tax benefit for the tax deductions from exercises during these years.

The total fair value of the shares vested during the years ended December 31, 2006 and 2007 was $837 and $808, respectively. The intrinsic value of the options exercised during the years ended December 31, 2006 and 2007 was $27 and $0, respectively.

Restricted Stock Grants

Performance based shares were granted on October 3 and December 20 of 2007 to certain senior executives that vest upon the achievement of certain criteria as follows: 10% of the shares vest upon achieving each of a 10%, 20%, 30% 40% and 50% increase for the Company in total gross revenue in a quarter over its third quarter 2007 total gross revenue shown on its statement of operations as reported in the SEC filings and 25% of the shares vest upon the Company achieving each of (1) a quarterly operating cash break even (defined as zero or positive “net cash provided by operations” consistent with or as reported on the “Consolidated Statement of Cash Flows” in the financial statements filed with SEC) and (2) a 10% net income as a percent of revenue. The Performance Grants had a fair value of $206 on their dates of grant of October 3 and December 20, 2007. As of December 31, 2007, it was determined that is was more likely than not that the performance grants would be not be earned and therefore there was no compensation expense recorded for these grants.

The following table is the summary of the Company’s non-vested restricted shares as of December 31, 2007 and changes during the year then ended:

	Shares
Nonvested as of January 1, 2007	0
Granted	1,151,000
Vested	0
Forfeited	(250,000	)
Nonvested as of December 31, 2007	901,000

Employee Stock Purchase Plan

In October 2001, the Company’s stockholders approved the WorldGate 2001 Employee Stock Purchase Plan that provides eligible participants with the opportunity to periodically acquire shares of its common stock through payroll deductions. Eligible participants may contribute up to fifteen percent of their compensation towards the purchase of the Company’s common stock. At the end of each calendar quarter, the contributions of the participants are used to purchase shares of the Company’s common stock at the lower of eighty-five percent of the market price of its common stock: (i) at the beginning of each calendar quarter or (ii) at the end of each calendar quarter. A maximum of 750,000 shares of the Company’s common stock (plus an annual increase of 375,000 shares) may be purchased in the aggregate by participants in the Stock Purchase Plan.

During 2006 and 2007, the Company sold 18,040 and 42,262 shares of common stock under the Stock Purchase Plan for proceeds of $27 and $24, respectively

10.  Commitments and Contingencies

Leases

The Company’s current five year lease was signed on September 1, 2005 and covers 42,500 square feet at an annual rate of $11.40 per square foot with a 3% increase annually, cancelable by either party with eight months notice, with a termination by tenant also including six months termination fee. Total rent expense for the years ended December 31, 2006 and 2007 amounted to approximately $642 and $657, respectively. In March 2008 the parties agreed in principle to a new lease (and the cancellation of the current lease with no termination cost) for a smaller space within the current facility consisting of approximately 17,000 square feet at an annual fee of $7 per square foot. This new lease is expected to be cancelable by either party upon 90 days notice with no termination costs.

In November 2003, the Company entered into a 60 month lease for office equipment. As of December 31, 2007, there remains a total of $5 to be paid over the remaining period of this lease. In December 2007, the

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Company entered into a 60 month lease for office equipment. As of December 31, 2007 there remains a total of $56 to be paid over the remaining period of this lease.

Disclosure of Contractual Obligations

The future minimum contractual rental commitments under non-cancelable leases (including the lease expected to be cancelled in April 2008) for each of the fiscal years ending December 31 are as follows:

2008	$	535
2009	546
2010	375
2011	11
2012	11
Total	$	1,478

Legal Proceedings

Although from time to time the Company is involved in litigation as a routine matter in conducting its business, we are not currently involved in any litigation which it believes is material to its operations or balance sheet. During the first fiscal quarter 2008 the Company was involved in a dispute with Aequus, its largest customer. With the exception of certain NRE services, in the amount of approximately $1.3, million which remains the subject of agreed arbitration between the parties, this dispute was settled as part of the March 31, 2008 agreement with this customer (Note 2). When the Company is involved in disputes or other legal proceedings it complies with the requirements of currently prevailing accounting standards and provide for accruals where a liability is probable and a reasonable estimate can be made as to the probable amount of such liability.

11.  Significant Agreements and Transactions

 The Company has a current multi-year agreement with Mototech , an investor, to provide the Company with engineering and development support. As a result of this agreement, the Company has expensed approximately $64 and $415, respectively for the years ended December 31, 2007 and 2006. Accounts payable to this investor amounted to $809 and $$1,377 at December 31, 2007 and December 31, 2006, respectively. This agreement provides for contracted services, including hardware and software development, and the creation and development of tools to facilitate the Company’s engineering efforts. This agreement does not provide for ongoing royalties, purchase provisions, or for any requirement to provide additional funding to the Company. Net revenues from operations recognized from Mototech were approximately $2 and $406 for the years ended December 31, 2007 and 2006, respectively. This investor accounted for approximately 0% and 14% of the revenues for the years ended December 31, 2007 and 2006, respectively. Accounts receivable from this investor were $8 and $1, respectively, as of December 31, 2007 and December 31, 2006.

In July, 2007, the Company sold its “Shadow” trademark to T-Mobile USA, Inc. and received $500. In addition, the Company obtained a license to continue its use of the mark until July 7, 2009. Shadow is the non-registered trademark currently used with respect to the Company’s Ojo PVP 900. The Company has retained all ownership in Ojo, which is its primary registered mark.

On September 24, 2007, the Company completed a private placement with Antonio Tomasello, a private investor who is the father of David Tomasello, a director of the Company, of its common stock in the principal amount of $1,000.  As part of the private placement, the Company issued to the Investor 2,564,102 shares of common stock and warrants to purchase a total of 2,564,102 shares of common stock, with an exercise price of $0.485 per share.  Mr. Tomasello is currently the largest non-affiliated investor in WorldGate, and the father of one of the Company’s directors.

On May 9, 2006 the Company entered into a multiyear agreement with Aequus, for Aequus to purchase Ojo video phones through its wholly owned subsidiary Snap Telecommunications Inc., (Snap!VRS) , a provider of Video Relay Services (VRS) and Video Remote Interpreting (VRI) services for the deaf and hard of hearing.  On June 20, 2007 the Company announced that it had expanded its relationship with Aequus and Snap!VRS modifying their earlier agreement to provide for the parties to work collaboratively to identify the most desired Ojo features and capabilities that will provide the best video phone experience for the VRS user community and that would enable Ojo to be the preferred VRS video phone. As part of the modified agreement the Company agreed to contract to provide development and engineering resources to accomplish these features and capabilities and in addition, as a

F-29

result of Snap’s utilization of the Ojo network, Snap also placed a purchase order for 10,000 Ojos to begin to fill the current Snap order backlog. In the later part of the third quarter of 2007 product shipments were commenced to Snap!VRS’ Video Relay Services customers.

On March 31, 2008, the Company entered into a new agreement with Aequus Technologies Corp. and Snap Telecommunications, Inc. (collectively “Aequus”). This new agreement, inter alia, provides for the (i) resolution of a dispute with Aequus regarding amounts the Company claimed were owed to the Company by Aequus and the termination by the Company of service to Aequus, (ii) payment to the Company by Aequus of approximately $5 million in scheduled payments over the next ten months, (iii) agreement to arbitrate approximately $1.4 million additional dollars claimed by the Company to be owed by Aequus and (iv) purchase of an additional $1.5 million of video phones by Aequus (the “Aequus Transaction’). As a result of this new agreement Aequus is planning to build a new data center, with support and training provided by the Company, and upon completion, directly operating a video phone service for its customers.

12.  Employee Benefit Plan

The Company maintains a new Retirement Savings Plan that is funded by the participant’s salary reduction contributions. All employees of the Company are eligible to participate in the plan upon joining the Company. The plan is intended to permit any eligible employee who wishes to participate to contribute up to 12% of the employee’s compensation on a before-tax basis under Section 401(k) of the Internal Revenue Code. The plan provides for discretionary Company matching contributions and discretionary Company profit-sharing contributions. Contributions are invested, in such proportions as the employee may elect in a variety of mutual investment funds. During the years ended December 31, 2007 and 2006, the Company made no matching or discretionary profit-sharing contributions to the plan.

13Supplemental disclosure of cash flow information

	Year Ended December 31
	2006		2007
Cash paid for interest	$	0	$	2
Non-cash investing and financing activities:
Conversion of derivative liability	1,020		0
Accretion on preferred stock	28		26
Conversion of preferred stock to common stock	334		166
Conversion of convertible debenture to common stock	1,350		3,650
Dividends payable on preferred stock	1		0
Deemed dividend on conversion of preferred stock	68		4
Common stock issued for accrued dividends	14		6
Reclassification of conversion liability	0		5,384

14.   Geographical Data

Financial Information Relating to Foreign and Domestic Operations and Export Sales for the years ended December 31, 2006 and 2007

	2006			2007
Net revenues from continuing operations by geographic area:
United States	$	1,326		$	3,128
Foreign (*)	1,450			317
Total	$	2,776		$	3,445
Net Loss (all from United States operations)	$	(17,608	)	$	(14,739	)
Identifiable assets within the United States	$	14,251		$	3,243
Identifiable foreign assets (hardware and tooling for manufacturing) in Taiwan, R.O.C.	$	315		$	171

* Net revenues for the years ended December 31, 2006 and 2007, respectively, include net revenues primarily derived from sales to customers located as follows:

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	2006	2007
Turkey	0	268
Taiwan, R.O.C.	405	3
Italy	0	7
Israel	251	0
New Zealand	59	0
Russia	718	0
South Africa	0	4
Venezuela	0	29
Others	17	6
Total	1,450	317

F-31

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures

(a)Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e))  that are designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the required disclosures. In designing and evaluating the disclosure controls and procedures, the Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of December 31, 2007.  The Company’s Chief Executive Officer and Chief Financial Officer determined that the Company has a material weakness as a result of several significant deficiencies including lack of segregations of duties, lack of appropriate IT security and program change controls,  insufficient documentation of period-end reviews, the improper recording of revenues, not recording inventory at the lower of cost or market, and the incorrect determination of grant date for stock based awards. The temporary shift in the Company’s focus and resources toward keeping the Company solvent contributed to the material weakness.   As a result of the material weakness identified the Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2007, its disclosure controls and procedures were not designed properly and were not effective in ensuring that the information required to be disclosed by the Company in the reports that we file and submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

While the Company continues the engagement of outside experts to provide counsel and guidance in areas where it cannot economically maintain the required expertise internally, the reductions in staff have adversely impacted the Company on exercising the necessary internal control over financial reporting for the quarter ended December 31, 2007.  In 2007 the Company initiated the process of implementing a financial system that it believes would improve the internal control over financial reporting and eliminate any identified deficiencies. Because of the financial condition the Company faced in 2007, and pending the obtaining of adequate financing to support the implementation of the necessary controls and procedures, the full implementation of this system is now delayed.

(b)  Management’s Annual Report on Internal Control Over Financial Reporting.

The Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d – 15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework.

Based on management’s assessment, management concluded that internal controls over financial reporting were not effective, as of December 31, 2007, due to significant deficiencies including lack of segregations of duties, lack of appropriate IT security and program change controls, insufficient documentation of period-end reviews, the improper recording of revenues, not recording inventory at the lower of cost or market, and incorrect determination of the grant date for stock based awards, which aggregated to a material weakness.  This annual report does not include an attestation report of the Company’s independent registered public accounting firm, regarding internal control over financial reporting. Managements report was not subject to attestation by the Company’s independent

24

registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.

Item 9B.  Other Information.

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Our business is managed by the Company’s executive officers under the direction of our Board of Directors, in accordance with the Delaware Business Corporation Law and our Bylaws.  Members of the Board are kept informed of our business through discussions with the Company’s executive officers, by reviewing materials provided to them and by participating in regular and special meetings of the Board and its committees.  In addition, to promote open discussion among our non-employee Directors, those Directors meet in regularly scheduled executive sessions without the participation of management or employee Directors.

In accordance with our Bylaws, our Board of Directors has specified that the number of Directors will be set at seven.  Six of our seven Directors are non-employee Directors, and the Board of Directors has determined that each of these six Directors has no relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director, and that each meets the objective requirements for “independence” under the NASDAQ Marketplace Rules.  Therefore, the Board of Directors has determined that each of these six Directors is an “independent” Director under the standards currently set forth in the NASDAQ Marketplace Rules.  The Director who is not independent is Mr. Krisbergh, the Company’s chairman and president.

As of December 31, 2007 our executive officers and directors are as follows:

Name	Age	Position
Hal M. Krisbergh	60	Chairman of the Board of Directors and Chief Executive Officer
Joel Boyarski	61	Vice President and Chief Financial Officer
Randall J. Gort	58	Vice President, Chief Legal Officer and Secretary
James E. McLoughlin	55	Vice President, Account Development and Marketing
Steven C. Davidson(2)	59	Director
Clarence L. Irving, Jr.(1)(3)	52	Director
Martin Jaffe(2)	61	Director
Jeff Morris(1)	55	Director
Lemuel Tarshis(2)(3)	66	Director
David Tomasello	35	Director

(1) Member of Compensation Committee

(2) Member of Audit Committee

(3) Member of the Corporate Governance and Nominating Committee

All Executive Officers serve at the pleasure of the Board.  Each director holds office until the election and qualification of the director’s successor at the next annual meeting of stockholders or until the director’s earlier death, removal or resignation.

Hal M. Krisbergh has served as our Chairman and Chief Executive Officer since our inception in March 1995. From September 1981 to September 1994, Mr. Krisbergh was an executive officer of General Instrument (now a part of Motorola, Inc.). Mr. Krisbergh served as President of General Instrument’s Communications Division and, for the past 25 years, has been a well-known figure in the cable industry. He is a recognized leader in the development of addressable cable boxes, impulse pay-per-view, opto-electronics and digital audio technologies. In 1991, Mr. Krisbergh received cable television’s prestigious Vanguard award. Prior to joining General Instrument, Mr. Krisbergh was employed by W. R. Grace & Co., Deloitte & Touche and Raytheon Company.

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Joel I. Boyarski joined our company in October 1999, and was named Vice President and Chief Financial Officer in September 2002. Prior to becoming Vice President and Chief Financial Officer, Mr. Boyarski served as General Manager of TVGateway, LLC from December 2001 until September 2002 and as Vice President of Business Development for TVGateway, LLC from June 2000 until December 2001. From October 1999 to June 2000, he served as a consultant for our Company. Prior to joining us, Mr. Boyarski was a business and financial consultant from June 1998 to October 1999, and for 23 years prior to June 1998, he held a variety of management positions at Joseph E. Seagram and Sons, Inc., including Vice President of Finance and Business Planning for several of Seagram’s Domestic and International divisions including North America, Asia Pacific and Global Duty Free.

Randall J. Gort joined our company in August 1997 as Vice President, Legal and Corporate Affairs, General Counsel and Secretary. In January 2003, Mr. Gort became the Company’s Chief Legal Officer. From July 1995 to August 1997, Mr. Gort was General Counsel, Secretary, and Director of Legal and Corporate Affairs for Integrated Circuit Systems, Inc. Mr. Gort was in private practice from August 1994 through June 1995. Prior to that time, from May 1987 through July 1994, he was an Associate General Counsel for Commodore International Ltd. Mr. Gort was with Schlumberger Ltd. from October 1982 through early 1987, originally as Senior Attorney and then as General Counsel, FACTRON Division. From April 1979 through October 1982, Mr. Gort was Counsel for various divisions of the 3M Company, including Medical and Surgical Products Divisions, Orthopedic Products Division, Electro-Mechanical Resources Division and 3M’s four tape divisions.

James E. McLoughlin joined our company in February 2001 and in January 2002 was named Vice President, Marketing, Business and Account Development. Prior to this position, Mr. McLoughlin served as Vice President, Sales and Marketing. From February 1981 through February 2001, Mr. McLoughlin was Vice President, Affiliate Operations for Home Box Office, where he was responsible for sales and marketing of premium television services to affiliated cable television companies.

Steven C. Davidson has been a member of our board of directors since April 2002. From 1979 until his retirement in April 2002, Mr. Davidson held various executive positions with HBO, Inc., most recently serving as Senior Vice President and General Manager of Affiliate Operations. In February 2004, Mr. Davidson returned to HBO, Inc. as Executive Vice President of Affiliate Sales. Mr. Davidson is also a director of Nation Fatherhood Initiative, a non-profit organization.

Clarence L. Irving, Jr. has been a member of our board of directors since July 2000. He has been President and Chief Executive Officer of Irving Information Group, a consulting services firm, since October 1999 and has served as a director of Covad Communications Group, Inc. since April 1999. Covad owns and operates the largest national broadband network, and is a leading supplier of facilities-based provider of data, voice, and wireless telecommunications solutions for small and medium-sized businesses. Covad is also a key supplier of high-bandwidth access for telecommunications services providers like EarthLink, AOL, and AT&T.  On August 15, 2002, Covad Communications Group, Inc. filed a voluntary petition for relief under Chapter 11 of the Federal bankruptcy code in the United States Bankruptcy Court for the District of Delaware. Mr. Irving served as Assistant Secretary of Commerce to the United States Department of Commerce from June 1993 to October 1999.

Martin Jaffe has been a member of our board of directors since April 2002. Since January 2002, Mr. Jaffe has been the Chief Operating Officer, Managing Director and Co-Founder of Silvercrest Asset Management Group LLC, an independent, employee-owned, registered investment advisor which provides asset management and family office services to families and select institutional investors. From November 2000 until September 2001, Mr. Jaffe was Chief Financial Officer of Credit Suisse Asset Management Group LLC, and from 1981 until November 2000, Mr. Jaffe was Chief Operating Officer of Donaldson, Lufkin & Jenrette Asset Management Group.Messrs Jaffe and Tarshis are brothers-in-law.

Jeff Morris has been a member of our board of directors since April 2001. Mr. Morris is currently Senior Vice President of Long Term Strategy & Technology Development at Showtime Networks Inc., an originator and distributor of entertainment content through its premium television networks SHOWTIME®, THE MOVIE CHANNEL™ and FLIX®, as well as the multiplex channels SHOWTIME® TOO™, SHOWTIME® SHOWCASE, SHOWTIME EXTREME®, SHOWTIME BEYOND®, SHOWTIME NEXT®, SHOWTIME WOMEN®, SHOWTIME FAMILYZONE® and TMC xtra.  He has been in his current position since August 2005. From June 2001 to July 2005, Mr. Morris was the principle of Digital Media Consulting, a new media consulting company. From July 1999 to April 2001 Mr. Morris was President and Chief Executive Officer of Yack, Inc., an Internet events and program guide. Mr. Morris is a veteran of the cable television industry, including a previous tenure from 1984 through 1999 at Showtime Networks, Inc., where his last position was Senior Vice President of New Media and Technology Development.

26

Lemuel A. Tarshis has been a member of our board of directors since April 2001. Since August 1991, Dr. Tarshis has been a director for the Howe School Alliance for Technology Management at the Stevens Institute of Technology.  Dr. Tarshis also currently is a director for both Aequus Technologies Corp. and Life-Pack Technologies, Inc.  In addition, he has worked as a management consultant for Lucent Technologies Inc., Bell Atlantic, GTECH Corporation, AT&T Corporation, Aequus Technologies and Life-Pack Technologies.  Messrs Jaffe and Tarshis are brothers-in-law.

David Tomasello has been a member of our board of directors since May 23, 2007.  He is a graduate of Boston University with a degree in finance. He has been a member of the board of directors and the audit committee of Corimon S.A.C.A. since 2005. Corimon, a diversified manufacturer and distributor of packaging materials, chemicals and paint, is one of the top five conglomerates in Venezuela. Since 2003, Tomasello is also a member of the board of directors of Fininvest S.A., a Venezuelan commercial and residential real estate developer and Complejo Metalurgico de Sociedad Anonima (COMMTESA), a Venezuelan construction company.  Mr. Tomasello is the managing partner of Attiva Capital Management, an independent investment firm.  Mr. Tomasello’s father, Antonio Tomasello, is currently the beneficial owner of approximately 14% of WorldGate’s Common Stock.  Mr. Tomasello holds a power of attorney to vote such shares.

Code of Conduct

The Company has adopted a Code of Conduct that applies to all of our directors and employees, including, without limitation, our principal executive officer, our principal financial and accounting officer, and all of our employees performing financial or accounting functions.  The Company has posted our Code of Conduct on our website, www.wgate.com, under the “About Us” section. The Company intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding an amendment to, or waiver from, any provisions of our Code of Conduct by posting such information on our website at the location specified above.You can request a copy of our Code of Conduct, at no cost, by contacting Investor Relations, c/o WorldGate Communications, 3190 Tremont Ave., Trevose, PA  19053.

Corporate Governance At WorldGate

Our Board of Directors has a long-standing commitment to sound and effective corporate governance practices.  The foundation for our corporate governance is the Board’s policy that a majority of the members of the Board should be independent.  The Company has reviewed internally and with our Board of Directors the provisions of the Sarbanes-Oxley Act of 2002, the related rules of the SEC and current NASDAQ Marketplace Rules regarding corporate governance policies and procedures.  Our corporate governance documents comply with all requirements.

During Fiscal Year 2007, our Board of Directors held seventeen meetings.  Each member of the Board except Mr. Morris attended at least 75% of the total number of meetings of the Board and all committees on which he sits.  The Board also acts by unanimous written consent from time to time.

Board Committees

The standing committees of our Board of Directors consist of the Audit Committee, Compensation and Stock Option Committee and Corporate Governance Nominating Committee.  The Board has adopted a written charter for each of these committees that is available on the Company’s web site at http://www.wgate.com/about/board.html. These committees are described below. Our Board of Directors may also establish various other committees to assist it in its responsibilities.

Audit Committee.  The Audit Committee is responsible for providing general oversight with respect to the accounting principles employed in our financial reporting.  It operates in accordance with a written charter adopted by our Board of Directors. The Audit Committee monitors our financial reporting process and internal control system, reviews and appraises the audit efforts of our independent accountants and provides an avenue of communication among the independent accountants, financial and senior management and the Board of Directors. The Audit Committee meets at least each quarter and at least once annually with our management and independent public accountants to review the scope of auditing procedures, our policies relating to internal auditing and accounting procedures and controls, and to discuss results of the annual audit of our financial statements. The Audit Committee is currently composed of Dr. Tarshis, Mr. Davidson and Mr. Jaffe, each of whom is “independent” as such term is defined under Rule 4200(a)(15) of the NASDAQ listing standards. The Audit Committee also complies with the financial sophistication requirement under the NASDAQ listing standards. In addition, the Board has determined that Mr. Jaffe is an audit committee financial expert as defined by the Instruction to Item 407(d)(5)(i) of Regulation S-K.  Four separate meetings of this committee were held in 2007 independent of the general meetings for the full board.

27

Compensation and Stock Option Committee.  The Compensation and Stock Option Committee is currently composed of two directors, Messrs. Irving and Morris, each of whom is “independent” as such term is defined under applicable NASDAQ rules.  Further details concerning the duties of this committee, can be found in Item 11 of this annual report.

Corporate Governance and Nominating Committee.  The Corporate Governance and Nominating Committee is currently composed of two directors, Messrs. Irving and Tarshis, each of whom are “independent” as such term is defined under applicable NASDAQ rules. The primary function of this committee is to establish Board membership criteria; assist the Board by identifying individuals qualified to become Board members; recommend to the Board matters of corporate governance; facilitate the annual review of the performance of the Board and its committees; and periodically review CEO and management succession plans. The committee also reviews and evaluates stockholder nominees for director. In evaluating nominees for director the committee considers a number of qualities and skills that it believes are necessary for directors to possess, including, but not limited to, (i) roles and contributions valuable to the Company and the general business community; (ii) personal qualities of leadership, character, judgment, and whether the candidate possesses and maintains throughout service on the Board a reputation in the community at large of integrity, trust, respect, competence and adherence to the highest ethical standards; (iii) relevant knowledge and diversity of background and experience in such things as business, operations, technology, finance, and accounting, sales, marketing, international business, government and the like; and (iv) whether the candidate is free of conflicts and has the time required for preparation, participation and attendance at meetings. A director’s qualifications in light of these criteria are considered at least each time the director is re-nominated for Board membership. Stockholder recommendations should be submitted to the Company’s Corporate Secretary in writing no later than the date determined in accordance with the deadlines by which a stockholder must give notice of a matter that he or she wishes to bring before the Company’s Annual Meeting of Shareholders as described in the Stockholder’s Proposals for the 2007 Annual Meeting section of the Company’s 2007 Proxy Statement. Any recommendation must include: (i) the name and address of the stockholder making the recommendation; (ii) pertinent biographical information about the recommended candidate; and (iii) a description of all arrangements or understandings between the stockholder and the recommended candidate. Recommendations that are received by the Secretary by the deadline will be forwarded to the Chairman of the Governance and Nominating Committee for review and consideration. No separate meetings of this committee were held in 2007 independent of the general meetings for the full board.

Section 16(a) Beneficial Ownership Reporting Compliance.

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than 10% of our common stock (collectively, the “reporting persons”) to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies of these reports. Based solely on our review of those documents received by us, and written representations, if any, received from reporting persons with respect to the filing of reports on Forms 3, 4 and 5, the Company believes that all filings required to be made by the reporting persons for fiscal year 2007 were made on a timely basis.

Item 11. Executive Compensation.

Compensation Discussion and Analysis

Compensation and Stock Option Committee Membership and Organization

The Compensation and Stock Option Committee is currently composed of two directors, Messrs. Irving and Morris, each of whom is “independent” as such term is defined under applicable NASDAQ rules. The Compensation and Stock Option Committee has general supervisory power over, and the power to grant options under, the Company’s 2003 Equity Incentive Plan. In addition, the Compensation and Stock Option Committee recommends to the Board the compensation of the Company’s Chief Executive Officer, reviews and takes action on the recommendations of the Chief Executive Officer as to the compensation of the Company’s other executive officers, approves the grants of any bonuses to officers, and reviews the Company’s compensation strategy for other compensation matters generally. The Board has adopted a written charter for the Compensation and Stock Option Committee that is available on the Company’s web site at http://www.wgate.com/about/board.html/. No separate meetings of this committee were held in 2007 independent of the general meetings of the full board.  No member of the Committee is an officer or employee of the Company.

Compensation Philosophy and Objectives.

The Compensation and Stock Option Committee’s philosophy and objectives in setting compensation policies is to align pay with performance, while at the same time providing fair, reasonable and competitive compensation

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that will allow us to retain and attract superior executive talent. The Committee strongly believes that executive compensation should align executives’ interests with those of stockholders by rewarding achievement of specific annual, long-term, and strategic goals by the Company, with the ultimate objective of improving stockholder value. To that end, the Compensation and Stock Option Committee believes executive compensation packages provided by the Company to its executive officers should include a mix of both cash and equity-based compensation that reward performance as measured against established goals.

Setting Executive Compensation.

Based on the foregoing philosophy and objectives, the Committee has structured the Company’s annual and long-term incentive-based executive compensation to motivate executives to achieve the business goals set by the Company and reward the executives for achieving such goals. The base salaries, targeted bonus amounts and equity incentive awards established for or granted to the Company’s executive officers are based, in part, on the Committee’s understanding of the Company’s current financial position, compensation amounts and forms paid to persons in comparable roles performing at comparable levels at other companies in the same or related industries, the Company’s need to attract and retain key personnel for whom the Company must compete against larger, more established companies, and other market factors. Such amounts reflect the subjective discretion of the members of the Committee based on these factors as well as the Committee’s evaluation of the Company’s current and anticipated future performance, the experience of each executive officer and the contribution of the officer to such performance, and the contribution of the individual executive officers to the Company in areas not necessarily reflected by the Company’s performance.

Components of Executive Compensation for Fiscal Year 2007.

For the fiscal year ended December 31, 2007, the principal components of compensation for our executive officers were;

Base Salaries.  Salary levels are typically reviewed annually as part of our performance review process as well as upon a promotion or other change in job responsibility. During 2007 none of the senior officers received any base salary increase and further elected to waive and/or take reduced salary for a portion of the fiscal year in light of the Company’s financial condition.

Annual Bonuses.  Annual bonuses are normally intended to provide an incentive for improved performance in the short term. Typically the Committee establishes target bonus levels at the beginning of each year based on the factors noted above, and awards a percentage of such target levels based on individual, department and Company performance. No bonuses were paid during 2007.

Long-Term Incentive Compensation.  The Company’s long-term incentive compensation plan, administered through the Company’s equity incentive plan, promotes ownership of the Company’s Common Stock, which, in turn, provides a common interest between the stockholders of the Company and the executive officers of the Company. The Committee has the authority to administer the long term incentive plans and to exercise all the powers and authorities either specifically granted to it, or necessary or advisable in the administration of the plans, including, without limitation, the authority to grant awards; to determine the persons to whom and the time or times at which awards shall be granted; to determine the type and number of awards to be granted, the number of shares of common stock to which an award may relate and the terms, conditions, restrictions and performance goals relating to any award; to determine whether, to what extent, and under what circumstances an award may be settled, canceled, forfeited, exchanged, or surrendered; to make adjustments in the performance goals in recognition of unusual or non-recurring events affecting us or our financial statements of WorldGate (to the extent not inconsistent with Section 162(m) of the Code, if applicable), or in response to changes in applicable laws, regulations, or accounting principles; to construe and interpret the plans and any award; to prescribe, amend and rescind rules and regulations relating to the plans; to determine the terms and provisions of agreements evidencing awards; and to make all other determinations deemed necessary or advisable for the administration of the plans.

Typically awards granted under the plan have an exercise price equal to the fair market value of the shares on the date of grant, an exercise period of ten years and generally vest over four years, subject to acceleration in the event of some changes of control of WorldGate. In keeping with a philosophy of providing a total compensation package that favors at-risk components of pay, long-term incentives comprise a significant component of an executive officer’s total compensation package. These incentives are designed to motivate and reward executive officers for maximizing stockholder value and encourage the long-term employment of key employees. The size of grants is based primarily on the responsibilities of the applicable employee in addition to the factors discussed above. Only the Committee may approve grants to our executive officers. However, the Committee has delegated to a committee of executive officers the authority to grant stock options to employees below the level of executive officer in an amount not to exceed 5,000 shares to any one individual in any twelve month period.

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Timing of Grants. Stock options are generally granted by the Committee at their regularly scheduled, predetermined meetings. On limited occasion, grants may occur during an interim meeting of the Committee or upon unanimous written consent of the Committee or pursuant to the delegated authority granted to the committee of executive officers, which occurs primarily for the purpose of approving a compensation package for newly hired or promoted executives. Information with respect to the long term incentive compensation is set forth below in the table titled Grants of Plan-Based Awards.

Compensation of the Chief Executive Officer.  During fiscal year 2007, Mr. Krisbergh’s base salary was not increased.  In addition Mr. Krisbergh elected to waive and/or take reduced salary for a portion of the 2007 fiscal year in light of the Company’s financial condition.

Limitations on Deductibility of Compensation.  Under the 1993 Omnibus Budget Reconciliation Act, a portion of annual compensation payable after 1993 to any of the Company’s five highest paid executive officers would not be deductible by the Company for federal income tax purposes to the extent such officer’s overall compensation exceeds $1,000,000. Qualifying performance-based incentive compensation, however, would be both deductible and excluded for purposes of calculating the $1,000,000 base. Although the Committee does not presently intend to award compensation in excess of the $1,000,000 cap, it will continue to address this issue when formulating compensation arrangements for the Company’s executive officers.

Accounting for Stock-Based Compensation.  Beginning on January 1, 2006, the Company began accounting for stock-based payments including its stock options and RSAs in accordance with the requirements of FASB Statement 123(R).

Summary Compensation Table

The following table sets forth information concerning compensation paid with respect to our chief executive officer and three of the other most highly compensated officers who were serving as such as of December 31, 2007, each of whose aggregate compensation for fiscal 2007 exceeded $100,000, for services rendered in all capacities for us and our subsidiaries.

2007 SUMMARY COMPENSATION TABLE

Name and Principal Position	Fiscal Year	Salary ($)	Bonus ($)	Share Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Hal M. Krisbergh Chairman and Chief Executive Officer	2007 2006	304,391 387,246	— —	— —	— 1,485	— —	304,391 388,731
Richard Westerfer Vice President, Chief Operations Officer (1)	2007 2006	188,480 244,213	— —	812 —	917 825	— —	190,209 245,038
Randall J. Gort Vice President, Chief Legal Officer	2007 2006	180,510 227,298	— —	2,062 —	917 743	— —	183,489 228,041
Joel Boyarski Vice President, Chief Financial Officer	2007 2006	176,550 222,263	— —	1,875 —	804 660	— —	179,229 222,923

(1) Mr. Westerfer’s employment terminated December 2007 and all of his stock awards and option awards for 2007 were terminated

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The following table summarizes the grants of plan based awards given to the named executives for fiscal year 2007:

GRANTS OF PLAN-BASED AWARDS

FISCAL YEAR 2007

Name	Grant Date	All Other Stock Awards: Number of Shares of Stock or Units (#)		Exercise or Base Price of Option Awards ($/Sh)	Grant Date Fair Value of Stock Options ($)
Hal M. Krisbergh		0		0	0
Richard Westerfer	10/3/07	163,000	(1)	0.30	36,605
	10/3/07	250,000	(2)	0.30	32,500
Randall J. Gort	10/3/07	163,000	(1)	0.30	36,605
	10/3/07	275,000	(2)	0.30	35,750
Joel Boyarski	10/3/07	143,000	(1)	0.30	32,175
	10/3/07	250,000	(2)	0.30	32,500

(1) These options vest in four equal annual installments beginning on the first anniversary of the date of grant.

(2) Performance based shares vest as follows: 10% of the shares vest upon achieving each of a 10%, 20%, 30% 40% and 50% increase in Company total gross revenue in a quarter over its third quarter 2007 total gross revenue shown on its statement of operations as reported in its SEC filings and 25% of the shares vest upon the Company achieving each of (1) a quarterly operating cash break even (defined as zero or positive “net cash provided by operations” consistent with or as reported on the “Consolidated Statement of Cash Flows” in the financial statements filed with SEC) and (2) a 10% net income as a percent of revenue.

The following table summarizes all outstanding equity awards for the named executives at December 31, 2007:

OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END

Name	Number of Securities Underlying Unexercised Options/Shrs (#) Exercisable	Number of Securities Underlying Unexercised Options/Shrs(#) Unexercisable	Option Exercise Price ($)	Option Expiration Date
Hal M. Krisbergh	20,000	—	21.57	5/5/2010
	160,000	—	2.50	5/19/2011
	80,000	—	1.59	5/21/2012
	25,000	25,000(1)	3.95	3/9/2015
	22,500	22,500(2)	2.20	4/25/2016
Richard Westerfer (3)	145,000	—	2.78	4/26/2011
	4,000	—	2.60	5/24/2011
	1,600	—	2.61	5/24/2011
	2,400	—	2.65	5/24/2011
	8,000	—	2.80	5/31/2011
	49,000	—	2.40	5/1/2012
	37,000	—	0.38	2/28/2013
	163,000	—	0.52	10/1/2013
	150,000	—	1.06	1/3/2014
	12,500	—	4.43	12/24/2014
	12,500	—	2.63	11/10/2015
	6,250	—	1.40	10/14/2016

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Randall J. Gort	127,333	—	2.78	4/26/2011
	24,000	—	2.40	5/1/2012
	37,000	—	0.38	2/28/2013
	163,000	—	0.52	10/1/2013
	150,000	50,000(4)	1.06	1/3/2014
	16,875	5,625(5)	4.43	12/24/2014
	11,250	11,250(6)	2.63	11/10/2015
	5,625	16,875(7)	1.40	11/14/2016
	—	163,000(8)	0.30	10/4/2017
	—	275,000(9)	0.30	10/4/2017
Joel Boyarski	5,738	—	6.34	12/9/2010
	45,000	—	1.93	2/1/2012
	20,000	—	1.55	2/28/2012
	10,000	—	2.45	4/26/2012
	57,000	—	0.38	2/28/2013
	143,000	—	0.52	10/1/2013
	131,250	4,3750(4)	1.06	1/3/2014
	15,000	5,000(5)	4.43	12/24/2014
	10,000	10,000(6)	2.63	11/10/2015
	5,000	1,5000(7)	1.40	11/14/2016
	—	143,000(8)	0.30	10/4/2017
	—	250,000(9)	0.30	10/4/2017

(1)These options vest in three annual installments beginning on March 8, 2007.

(2)These options vest in three annual installments beginning on November 30, 2007.

(3)Mr. Westerfer’s employment terminated in December 2007 and all of his non-vested options were forfeited.

(4)These options vest on January 2, 2008.

(5)These options vest on December 23, 2008.

(6)These options vest in two annual installments beginning on November 9, 2008.

(7)These options vest in three annual installments beginning on November 13, 2008.

(8)These options vest in four annual installments beginning on October 3, 2008

(9)These restricted shares vest upon the Company achieving certain identified financial targets

During 2007 no options were exercised by the named executive officers.

The Company has no information to provide with respect to Pension Benefits (Reg. S-K 402(g)(1)), Nonqualified Deferred Compensation (Reg. S-K 402(n)(2)), and potential payments upon termination or change-in-control (Reg. S-K 402(g)(2)).

COMPENSATION OF DIRECTORS

FISCAL YEAR 2007

Name	Fees Earned or Paid in Cash	Option Awards	All Other Compensation	Total
	($)	($)	($)	($)
Steven C. Davidson	13,250	186	—	13,436
Clarence L. Irving, Jr.	13,250	186	—	13,436
Martin Jaffe	14,000	186	—	14,186
Jeff Morris	11,750	186		11,936
Lemuel Tarshis	14,500	186	—	14,686
David Tomasello	1,750	625		2,375

Pursuant to our 2003 Equity Incentive Plan, non-employee directors, currently Messrs. Davidson, Jaffe, Irving, Morris, Tarshis and Tomasello, will receive an annual stock grant of 10,000 shares, vesting in equal amounts over four years, issued at the fair market value on the date of grant, a stipend of $1,000 for each board or committee meeting the director attends in person, and $250 for each meeting attended telephonically. Furthermore, the Company paid an annual stipend of $5,000 for 2005 and will pay $10,000 for each year thereafter, as well as an

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initial stock grant of 30,000 shares upon becoming a non-employee director.  The Company will continue to reimburse non-employee directors for reasonable travel expenses for attending board or committee meetings.

On October 5, 2001, our shareholders approved the WorldGate 2001 Employee Stock Purchase Plan (the “Stock Purchase Plan”). The Stock Purchase Plan provides our eligible employees with the opportunity to periodically acquire shares of our common stock through payroll deductions. In general, the Stock Purchase Plan provides that:

· each employee who has completed six months of continuous employment with us is eligible to participate in the Stock Purchase Plan so long as the employee customarily works at least 20 hours per week and 5 months per year;

· participants in the Stock Purchase Plan are permitted to contribute up to fifteen percent of their compensation towards the purchase of our common stock;

· at the end of each calendar quarter, the contributions of the participants are used to purchase shares of our common stock at the lower of eighty-five percent of the market price of our common stock: (i) at the beginning of each calendar quarter or (ii) at the end of each calendar quarter;

· shares of our common stock that are purchased under the Stock Purchase Plan are not transferable by the participant until at least nine months has elapsed from the acquisition of the shares;

· a maximum of 750,000 shares of our common stock (plus an annual increase of 375,000 shares) may be purchased in the aggregate by participants in the Stock Purchase Plan; and

· our Board of Directors has the power and authority to administer the Stock Purchase Plan and may, subject to certain limitations suspend, revise, terminate or amend the Stock Purchase Plan.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information as of December 31, 2007 regarding securities authorized for issuance under the Company’s equity compensation plans:

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (c)
Equity compensation plans approved by security holders (1)	6,808,342	$	1.37	1,197,029	(1)
Equity compensation plans not approved by security holders (2)	—	—		—
Total	6,808,342	1.37		1,197,029	(1)

(1) 2003 Equity Incentive Plan.

(2) The Company does not maintain any equity compensation plans that have not been approved by its stockholders.

The Equity Plan has an automatic annual increase in the number of shares reserved for issuance in an amount equal to the lesser of 4% of the then outstanding shares of our Common Stock or 1,000,000 shares.

In 2003 the Company adopted an equity incentive plan (the “Equity Plan”) which was approved by stockholders in November, 2004.  The principal features of our Equity Plan are summarized below, but the summary is qualified in its entirety by reference to our Equity Plan, which was filed as exhibit 10.6 to the Company’s Proxy Statement to shareholders filed September 3, 2004

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This plan provides for the grant of equity awards to such officers, other employees, consultants and directors of WorldGate and our affiliates as the Compensation and Stock Option Committee may determine from time to time. Although various types of awards are available under the Equity Plan, including non-qualified and incentive stock options, restricted stock and performance based awards, currently only stock options and performance based restricted stock have been granted.  Such options vest in equal installments over a four-year period, and expire ten years following the date of its grant, subject to acceleration in the event of some changes of control of WorldGate, and earlier termination upon cessation of employment. Performance based restricted stock vests upon certain defined criteria as determined by the Company’s Board of Directors.

To administer our Equity Plan, the Compensation and Stock Option Committee must consist of at least two members of our board of directors, each of whom is a “non-employee director” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, or the Exchange Act and, with respect to awards that are intended to constitute performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, an “outside director” for the purposes of Section 162(m). The Compensation and Stock Committee, among other things, interprets our Equity Plan, selects award recipients, determines the type of awards to be granted to such recipients and determines the number of shares subject to each award and the terms and conditions thereof. The Compensation Committee may also determine if or when the exercise price of an option may be paid in the form of shares of our common stock and the extent to which shares or other amounts payable with respect to an award can be deferred by the participant. Our board of directors may amend or modify our Equity Plan at any time. In addition, our board of directors is also authorized to adopt, alter and repeal any rules relating to the administration of our Equity Plan and to rescind the authority of the Compensation Committee and thereafter directly administer our Equity Plan. However, subject to certain exceptions, no amendment or modification will impair the rights and obligations of a participant with respect to an award unless the participant consents to that amendment or modification.

Our Equity Plan will continue in effect until terminated by us in accordance with its terms, although incentive stock options may not be granted more than 10 years after the adoption of our Equity Plan.

The following table sets forth information as of April 1, 2008 regarding beneficial ownership of our common stock by the following persons:

·each person who is known to us to own beneficially more than 5% of the outstanding shares of common stock,

·each director,

·each executive officer named in the executive compensation table above, and

·all directors and executive officers as a group.

Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law. Beneficial ownership is determined in accordance with the rules of the SEC, based on factors including voting and investment power with respect to shares, subject to applicable community property laws. Shares of common stock subject to options or warrants exercisable within 60 days of April 1, 2008 are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person. Unless otherwise indicated, the mailing address of the beneficial owners is 3190 Tremont Avenue, Suite 100, Trevose, Pennsylvania 19053.

Name of Beneficial Owner	Number of Shares of Common Stock Beneficially Owned	Percent of Ownership
Hal M. Krisbergh(1)	5,937,556	10.43	%
Randall J. Gort(2)	1,035,025	1.82	%
Richard Westerfer (3)	241	*
Joel Boyarski(4)	745,109	1.31	%
James McLoughlin(5)	674,900	1.19	%
Steven C. Davidson(6)	59,000	*
Martin Jaffe(7)	109,000	*
Clarence L. Irving, Jr.(8)	67,000	*
Jeff Morris(9)	59,500	*
Lemuel Tarshis(10)	72,700	*
David Tomasello (11)	9,057,501	15.91	%
Antonio Tomasello (12)	8,689,587	15.26	%
All current directors and executive officers as a group (10 persons)	17,817,532	29.83	%

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* Less than 1% of the outstanding Common Stock.

(1)	Includes options to purchase 320,000 shares of common stock. Also includes 3,654,246 shares of common stock held directly, 1,434,429 shares of common stock held within grantor retained trusts in which either Mr. Krisbergh or his spouse are trustees, 299,938 shares of common stock held by Mr. Krisbergh’s spouse and 300,000 shares of common stock held by the Krisbergh Family Foundation, with Mr. Krisbergh acting as the custodian for these shares.
(2)	Includes options to purchase 585,083 shares of common stock.  Also includes 106,063 shares of common stock held directly and 68,879 shares of common stock held by Mr. Gort as custodian for his minor children.
(3)	Includes 241 shares of common stock held by Mr. Westerfer’s minor son.
(4)	Includes options to purchase 485,739 shares of common stock. Also includes 9,371 shares of common stock held directly.
(5)	Includes options to purchase 429,900 shares of common stock.
(6)	Includes options to purchase 49,000 shares of common stock. Also includes 10,000 shares of common stock held directly.
(7)	Includes options to purchase 49,000 shares of common stock. Also includes 15,000 shares of common stock held directly.
(8)	Includes options to purchase 67,000 shares of common stock.
(9)	Includes options to purchase 59,500 shares of common stock.
(10)	Includes options to purchase 55,500 shares of common stock.  Also includes 5,200 shares of common stock held directly and 12,000 shares of common stock held by Mr. Tarshis’ spouse.
(11)	Includes options to purchase 7,500 shares, 235,914 of common stock held directly, 124,500 shares of common stock held beneficially as a result of Mr. Tomasello’s position with Cometasa, and 8,689,587 shares of common stock held beneficially as a result of a power of attorney over accounts of his father Antonio Tomasello (which shares are also reported in this table as being directly owned by David Tomasello).
(12)	Includes 6,125,485 shares and 2,564,102 warrants to buy shares, each of which is held directly.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

None.

Director Independence

                In accordance with our Bylaws, our Board of Directors has specified that, as of the date of our 2006 Annual Meeting, the number of Directors will be set at seven.  Six of our seven Directors are non-employee Directors, and the Board of Directors has determined that each of these six Directors has no relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director, and that each meets the objective requirements for “independence” under the NASDAQ Marketplace Rules.  Therefore, the Board of Directors has determined that each of these six Directors is an “independent” Director under the standards currently set forth in the NASDAQ Marketplace Rules.  The Director who is not independent is Mr. Krisbergh, the Company’s chairman and president.

As of December 31, 2007our directors are as follows:

Name	Age	Position
Hal M. Krisbergh	59	Chairman of the Board of Directors and Chief Executive Officer
Steven C. Davidson(2)	58	Director
Clarence L. Irving, Jr.(1)(3)	51	Director
Martin Jaffe(2)	60	Director
Jeff Morris(1)	54	Director
Lemuel Tarshis(2)(3)	66	Director
David Tomasello	35	Director

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(1)	Member of Compensation Committee
(2)	Member of Audit Committee
(3)	Member of the Corporate Governance and Nominating Committee

Item 14. Principal Accountant Fees and Services

The aggregate fees for professional services rendered to us by Marcum & Kliegman LLP, our independent registered public accounting firm for the fiscal years ended December 31, 2006 and 2007, are as follows (in whole dollars):

	Fiscal Years Ended December 31
	2006		2007
Audit fees	$	202,600	$	243,000
Audit related fees	33,000		32,000
Tax fees	25,000		24,000
All other fees	0		0
Total	$	260,600	$	299,000

Audit Fees

The “audit fees” reported above were billed to us by Marcum & Kliegman LLP for professional services rendered in connection with their audit of our consolidated financial statements and their limited reviews of our unaudited condensed consolidated financial statement information and our unaudited condensed consolidated interim financial statements included in our quarterly reports, and for services normally provided by  Marcum & Kliegman  LLP in connection with other statutory and regulatory filings or engagements, including audit consultations, issuance of consents for registration statements and SEC comment letters.

Audit Related Fees

The “audit related fees” reported above were billed to us by Marcum & Kliegman LLP   for assurance and related services that were reasonably related to the performance of their audit or review of our financial statements, but which are not reported as Audit Fees. These services include accounting consultations in connection with the impact of prospective accounting pronouncements and stock based compensation matters.

Tax Fees

During the fiscal years reported above, Marcum & Kliegman LLP rendered professional services to us relating to tax compliance, tax advice, or tax planning.

All Other Fees

During the fiscal years reported above, Marcum & Kliegman LLP rendered no professional services to us other than for those relating to audit, audit related and tax matters.

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Audit Committee Pre-approval Policies and Procedures

Our audit committee has adopted a policy requiring the pre-approval of all audit and permissible non-audit services provided by our independent public auditors. Under the policy, the audit committee is to specifically pre-approve before the end of each fiscal year any recurring audit and audit related services to be provided during the following fiscal year. The audit committee also may generally pre-approve, up to a specified maximum amount, any nonrecurring audit and audit related services for the following fiscal year. All pre-approved matters must be detailed as to the particular service or category of services to be provided, whether recurring or non-recurring, and reported to the audit committee at its next scheduled meeting. Permissible non-audit services are to be pre-approved on a case-by-case basis. The audit committee may delegate its pre-approval authority to any of its members, provided that such member reports all pre-approval decisions to the audit committee at its next scheduled meeting. Our independent public auditors and members of management are required to report periodically to the audit committee the extent of all services provided in accordance with the pre-approval policy, including the amount of fees attributable to such services.

In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as amended by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is required to disclose the approval by the audit committee of the Board of Directors of non-audit services to be performed by  Marcum and Kliegman LLP, the Company’s independent auditors. Non-audit services are services other than those provided in connection with an audit or review of the financial statements. During the period covered by this filing, the audit committee approved all audit related fees, tax fees and all other fees.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) Documents filed as part of this report.

1.Financial Statements

The following financial statements have been included as part of this report:

Report of Marcum & Kliegman LLP, Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity (Deficiency)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

3.  Exhibits

Exhibit	Description
3.1	Amended and Restated Certificate of Incorporation (11)
3.2	Amended and Restated Bylaws (2)
3.3	Certificate of Amendment to Certificate of Incorporation, dated October 18, 2004 (11)
3.4	Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock of the Company dated June 24, 2004 (11)
4.1	Form of Warrant issued by the Company to the Purchasers (as defined in the Amended and Restated Securities Agreement dated as of December 4, 2003) (4)
4.2	Form of Additional Investment Right issued by the Company to the Purchasers (as defined in the Amended and Restated Securities Agreement dated as of December 4, 2003) (4)
4.3	Form of Warrant issued by the Company to the Purchasers (as defined in the Securities Purchase Agreement dated as of January 20, 2004) (7)
4.4	Form of Additional Investment Right dated issued by the Company to the Purchasers (as defined in the Securities Purchase Agreement dated as of January 20, 2004) (7)
4.5	Form of Series A Warrant issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated as of June 24, 2004) (8)
4.6	Form of Series B Warrant issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated as of June 24, 2004 between the Company and the Investors) (8)
4.7	Form of Series C Warrant issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated as of June 24, 2004 between the Company and the Investors) (8)

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4.8	Form of Warrant issued by the Company to Mr. K. Y. Chou (13)
4.9	Form of Warrant dated August 3, 2005 issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors) (14)
4.10	Form of Warrant dated August 3, 2005 issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors) (14)
4.11	Investor Registration Rights Agreement, dated August 11, 2006, by and among the Company and Cornell Capital Partners, LP (16)
4.12	Form of Amended and Restated Secured Convertible Debenture issued by the Company to Cornell Capital Partners, LP, dated as of May 18, 2007 (17)
10.1	Lease Agreement dated October 7, 1998 between WorldGate and Balanced Capital LLC, as amended by First Amendment to Lease Agreement dated December 7, 1998 between WorldGate and Balanced Capital LLC, as further amended by Second Amendment to Lease Agreement dated December 17, 1998 between WorldGate and Balanced Capital LLC (1)
10.2	Amendment dated November 18, 2004 to Lease Agreement dated October 7, 1998 between WorldGate and Balanced Capital LLC (12)
10.3	Manufacturing Agreement between WorldGate and Mototech Inc. dated September 9, 2003 (6)
10.4	Development and Distribution Agreement dated as of April 28, 2004 between the Company, WorldGate Services, Inc. and General Instrument Corporation d/b/a the Broadband Communication Sector of Motorola, Inc. (9) (Portions of this agreement are subject to a confidential treatment request.)
10.5	1996 Stock Option Plan (3)
10.6	2003 Equity Incentive Plan(10)
10.7	Amended and Restated Securities Purchase Agreement dated as of December 4, 2003, by and between the Company and the Purchasers (as defined therein) (5)
10.8	Securities Purchase Agreement dated as of January 20, 2004 by and between the Company and the Purchasers (as defined therein) (7)
10.9	Securities Purchase Agreement dated as of June 24, 2004 by and between the Company and the Investors (as defined therein) (8)
10.10	Securities Purchase Agreement, dated as of August 11, 2006, by and among the Company and Cornell Capital Partners, LP (16)
10.11	Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors (as defined therein) (14)
10.12	Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors (as defined therein) (14)
10.13	License, Maintenance and Update Service Agreement between WorldGate and Aequus dated March 31, 2008 *
10.14	Revised and Restated Amendment and Master Contract between WorldGate and Aequus dated March 31, 2008 *
10.15	Master Agreement between WorldGate and Aequus dated March 31, 2008 *
10.16	Subscription Agreement dated September 24, 2007 between the Company and Antonio Tomasello *
10.17	Voting Agreement among  the Company, Antonio Tomasello and David Tomasello (17)
21	Subsidiaries*
23.1	Consent of Marcum & Kliegman  LLP*
24	Power of Attorney (included in signature page)
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)*
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)*
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002*

*	Filed herewith
(1)	Incorporated by reference to the exhibits to our Registration Statement on Form S-1/A as filed on April 7, 1999 (Registration No. 333-71997).
(2)	Incorporated by reference to the exhibits to our Form 10-Q Report for the quarter ended March 31, 1999.
(3)	Incorporated by reference to the exhibits to our Form 10-K/A Report for the fiscal year ended December 31, 2000, as filed on August 17, 2001.
(4)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed December 2, 2003.
(5)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed December 4, 2003.
(6)	Incorporated by reference to the exhibits to our Registration Statement on Form SB-2 as filed on December 24, 2003 (Registration No. 333-111571).

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(7)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed January 21, 2004.
(8)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed June 25, 2004.
(9)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed July 13, 2004.
(10)	Incorporated by reference to the exhibits to the Company’s Proxy Statement to shareholders filed September 3, 2004.
(11)	Incorporated by reference to the exhibits to our Form 10-Q Report for the quarter ended September 30, 2004, as filed on November 17, 2004.
(12)	Incorporated by reference to the exhibits to our Form 10-K Report for the fiscal year ended December 31, 2004, as filed on March 31, 2005.
(13)	Incorporated by reference to the exhibits to our Registration Statement on Form SB-2 as filed on May 24, 2005.
(14)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed August 8, 2005.
(15)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed November 23, 2005.
(16)	Incorporated by reference to the exhibits to our Form 10-Q Report for the quarter ended June 30, 2006, as filed on August 14, 2006.
(17)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed May 24, 2007.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WORLDGATE COMMUNICATIONS, INC.
Date: April 16, 2008	By:	/s/ HAL M. KRISBERGH
		Hal M. Krisbergh
		Chief Executive Officer

Power of Attorney

                Each person whose signature appears below hereby constitutes and appoints Hal M. Krisbergh and Randall J. Gort the true and lawful attorneys-in-fact and agents of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Capacity	Date
/s/ HAL M. KRISBERGH	Chairman of the Board and Chief Executive Officer
Hal M. Krisbergh	(Principal Executive Officer)	April 16, 2008
/s/ JOEL BOYARSKI
Joel Boyarski	Senior Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)	April 16, 2008
/s/ STEVEN C. DAVIDSON
Steven C. Davidson	Director	April 16, 2008
/s/ MARTIN JAFFE
Martin Jaffe	Director	April 16, 2008
/s/ CLARENCE L. IRVING, JR.
Clarence L. Irving, Jr.	Director	April 16, 2008
/s/ JEFF MORRIS
Jeff Morris	Director	April 16, 2008
/s/ LEMUEL TARSHIS
Lemuel Tarshis	Director	April 16, 2008
/s/ DAVID TOMASSELO	Director
David Tomasselo		April 16, 2008

40

Exhibit Index

Exhibit	Description
3.1	Amended and Restated Certificate of Incorporation (11)
3.2	Amended and Restated Bylaws (2)
3.3	Certificate of Amendment to Certificate of Incorporation, dated October 18, 2004 (11)
3.4	Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock of the Company dated June 24, 2004 (11)
4.1	Form of Warrant issued by the Company to the Purchasers (as defined in the Amended and Restated Securities Agreement dated as of December 4, 2003) (4)
4.2	Form of Additional Investment Right issued by the Company to the Purchasers (as defined in the Amended and Restated Securities Agreement dated as of December 4, 2003) (4)
4.3	Form of Warrant issued by the Company to the Purchasers (as defined in the Securities Purchase Agreement dated as of January 20, 2004) (7)
4.4	Form of Additional Investment Right dated issued by the Company to the Purchasers (as defined in the Securities Purchase Agreement dated as of January 20, 2004) (7)
4.5	Form of Series A Warrant issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated as of June 24, 2004) (8)
4.6	Form of Series B Warrant issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated as of June 24, 2004 between the Company and the Investors) (8)
4.7	Form of Series C Warrant issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated as of June 24, 2004 between the Company and the Investors) (8)
4.8	Form of Warrant issued by the Company to Mr. K. Y. Chou (13)
4.9	Form of Warrant dated August 3, 2005 issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors) (14)
4.10	Form of Warrant dated August 3, 2005 issued by the Company to the Investors (as defined in the Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors) (14)
4.11	Investor Registration Rights Agreement, dated August 11, 2006, by and among the Company and Cornell Capital Partners, LP (16)
4.12	Form of Amended and Restated Secured Convertible Debenture issued by the Company to Cornell Capital Partners, LP, dated as of May 18, 2007 (17)
10.1	Lease Agreement dated October 7, 1998 between WorldGate and Balanced Capital LLC, as amended by First Amendment to Lease Agreement dated December 7, 1998 between WorldGate and Balanced Capital LLC, as further amended by Second Amendment to Lease Agreement dated December 17, 1998 between WorldGate and Balanced Capital LLC (1)
10.2	Amendment dated November 18, 2004 to Lease Agreement dated October 7, 1998 between WorldGate and Balanced Capital LLC (12)
10.3	Manufacturing Agreement between WorldGate and Mototech Inc. dated September 9, 2003 (6)
10.4	Development and Distribution Agreement dated as of April 28, 2004 between the Company, WorldGate Services, Inc. and General Instrument Corporation d/b/a the Broadband Communication Sector of Motorola, Inc. (9) (Portions of this agreement are subject to a confidential treatment request.)
10.5	1996 Stock Option Plan (3)
10.6	2003 Equity Incentive Plan(10)
10.7	Amended and Restated Securities Purchase Agreement dated as of December 4, 2003, by and between the Company and the Purchasers (as defined therein) (5)
10.8	Securities Purchase Agreement dated as of January 20, 2004 by and between the Company and the Purchasers (as defined therein) (7)
10.9	Securities Purchase Agreement dated as of June 24, 2004 by and between the Company and the Investors (as defined therein) (8)
10.10	Securities Purchase Agreement, dated as of August 11, 2006, by and among the Company and CornellCapital Partners, LP (16)
10.11	Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors (as defined therein) (14)
10.12	Securities Purchase Agreement dated August 3, 2005 among the Company and the Investors (as defined therein) (14)
10.13	License, Maintenance and Update Service Agreement between WorldGate and Aequus dated March 31, 2008 *
10.14	Revised and Restated Amendment and Master Contract between WorldGate and Aequus dated March 31, 2008 *

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10.15	Master Agreement between WorldGate and Aequus dated March 31, 2008 *
10.16	Subscription Agreement dated September 24, 2007 between the Company and Antonio Tomasello *
10.17	Voting Agreement among the Company, Antonio Tomasello and David Tomasello (17)
21	Subsidiaries*
23.1	Consent of Marcum & Kliegman LLP*
24	Power of Attorney (included in signature page)
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)*
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)*
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002*

*	Filed herewith
(1)	Incorporated by reference to the exhibits to our Registration Statement on Form S-1/A as filed on April 7, 1999 (Registration No. 333-71997).
(2)	Incorporated by reference to the exhibits to our Form 10-Q Report for the quarter ended March 31, 1999.
(3)	Incorporated by reference to the exhibits to our Form 10-K/A Report for the fiscal year ended December 31, 2000, as filed on August 17, 2001.
(4)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed December 2, 2003.
(5)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed December 4, 2003.
(6)	Incorporated by reference to the exhibits to our Registration Statement on Form SB-2 as filed on December 24, 2003 (Registration No. 333-111571).
(7)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed January 21, 2004.
(8)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed June 25, 2004.
(9)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed July 13, 2004.
(10)	Incorporated by reference to the exhibits to the Company’s Proxy Statement to shareholders filed September 3, 2004.
(11)	Incorporated by reference to the exhibits to our Form 10-Q Report for the quarter ended September 30, 2004, as filed on November 17, 2004.
(12)	Incorporated by reference to the exhibits to our Form 10-K Report for the fiscal year ended December 31, 2004, as filed on March 31, 2005.
(13)	Incorporated by reference to the exhibits to our Registration Statement on Form SB-2 as filed on May 24, 2005.
(14)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed August 8, 2005.
(15)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed November 23, 2005.
(16)	Incorporated by reference to the exhibits to our Form 10-Q Report for the quarter ended June 30, 2006, as filed on August 14, 2006.
(17)	Incorporated by reference to the exhibits to our Current Report on Form 8-K filed May 24, 2007.

42

EX-10.13

Exhibit 10.13

LICENSE , MAINTENANCE AND UPDATE SERVICES AGREEMENT

THIS LICENSE, MAINTENANCE AND UPDATE SERVICES AGREEMENT (“Agreement”) is entered into this 31st day of March, 2008 between Aequus (as defined in Exhibit X hereto) and WorldGate (as defined in Exhibit X hereto).

WHEREAS, Aequus and WorldGate have entered into a certain Master Agreement dated the Effective Date pursuant to which the Parties agreed to enter into certain Related Documents, as that term is defined in the Master Agreement, including this Agreement.

NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties, the Parties agree as follows:

1.Definitions.

Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meaning ascribed to those terms set forth in Exhibit X attached hereto.  The following capitalized terms shall have the following corresponding meanings:

1.1.“Aequus Data” shall have the meaning set forth in Section 5.2.

1.2.“Authorized Sub-Licensee” shall mean a third party to whom Aequus grants a sub-license in accordance with Section 2.2; provided, however  that in no event may a Competitor be an Authorized Sub-Licensee.

1.3.“Confidential Information” shall have the meaning ascribed to that term in the Mutual Confidentiality Agreement.

1.4.“Contract Year” shall mean (a) the period commencing on the Effective Date and ending on April 1, 2009 and (b) the twelve-month period ending on April 1 of each calendar year during the Term.

1.5.“License Fee” shall mean one quarter percent (0.25%) of the VRS Reimbursement Revenue; provided, however, that in no event shall the License Fee be less than five thousand dollars ($5,000), or more than fifty thousand dollars ($50,000), in any Contract Year when due.

1.6.“Licensed IP” means all Intellectual Property owned or held under license by WorldGate which has been used by WorldGate (i) immediately prior to the Effective Date or at any time thereafter during the term of the Reseller Agreement in connection with the use and operation of Purchased Phones purchased by Aequus thereunder, or (ii) in the performance of Support Services hereunder, including in each case Intellectual Property developed or acquired by WorldGate pursuant to an SOW.

1.7.“Maintenance and Update Services Fee” shall mean one and three quarters percent (1.75%) of the VRS Reimbursement Revenue; provided, however, that in no event shall the Maintenance and Update Services Fee exceed three hundred fifty thousand dollars ($350,000) in any Contract Year.

1.8.“Mutual Confidentiality Agreement” shall mean that certain Mutual Confidentiality Agreement which is a Related Document.

1.9.“Service Month” shall have the meaning ascribed to such term in Section 2.7 hereof.

1.10.“Software Support Services” shall mean the services specified on Exhibit A hereto.

1.11.“Support Services” shall mean the Software Support Services and Tier 2 Support Services.

1.12.“Term” shall mean the period from the Effective Date until the termination of this Agreement in accordance with Section 13.

1.13.“Tier 2 Support Fee” shall mean $1.00 per calendar month for each Aequus Customer that has generated VRS Reimbursement Revenue during such month.

1.14.“Tier 2 Support Services” shall mean the services specified on Exhibit B hereto.

1.15.“Workaround” shall mean a procedure for minimizing the effect of an error in the Software so that such error does not materially interfere with Aequus’ use of the Software.

2.Scope of License

2.1License.  WorldGate hereby grants to Aequus, the following licenses to use the Licensed IP:

(a)an exclusive (except as set forth in the proviso to this clause (a)) transferable (only pursuant to an authorized sub-license or assignment as set forth herein) and

2

perpetual and irrevocable (except as otherwise specified herein) license, under the Licensed IP, to use, support and operate Purchased Phones solely in providing the Services in the Territory to Customers (the “Services Support License”) and; provided, however, that the Services Support License shall become non-exclusive in the event that either (i) Aequus’s rights under the Reseller Agreement which is a Related Document become non-exclusive or (ii) such Reseller Agreement terminates; and

(b)a non-exclusive transferable (only pursuant to an authorized sub-license or assignment as set forth herein) and perpetual and irrevocable (except as otherwise specified herein) license, under the Licensed IP, to manufacture or to have manufactured for Aequus and on its behalf any Purchased Phone (and, in connection therewith to create derivative works) (the “Manufacturing License”); provided, however, that Aequus agrees that it shall not use or otherwise exploit the Manufacturing License unless and until a Release Event has occurred and provided, further, that if WorldGate has exercised its right to terminate the Reseller Agreement which is a Related Document in accordance with the terms thereof effective prior to the occurrence of a Release Event, then the Manufacturing License shall simultaneously terminate.

2.2Sub-licenses.Aequus may grant to Authorized Sub-Licensees one or more sub-licenses of all or any part of the licensed rights exercisable by it hereunder solely for purposes of and as reasonably necessary to effectuate Aequus’s rights to use the Licensed IP in a manner consistent with the terms of this Agreement.

2.3Escrow Deposit.

(a)To ensure Aequus’s ability to exercise the licenses described in this Section 2 without material interruption which may result from a Release Event, WorldGate shall deliver into escrow, in accordance with the Software Escrow Agreement included as a Related Document, (i) copies of all Source Code and Object Code for all Programs or other Software relating to the operation and manufacture of each Purchased Phone, (ii) all processes necessary for assembling such Object Code into executable form in order to permit Full Usability Testing as provided in the agreement with the escrow agent and (iii) all Manufacturing Documentation.  As further set forth in the Software Escrow Agreement, unless otherwise agreed by the Parties, such escrowed copies (the “Escrow Materials”) shall be released from escrow and delivered to Aequus only upon written notice by Aequus to WorldGate and the Escrow Agent that one or

3

more Release Events has occurred.  The Software Escrow Agreement sets forth in greater detail Aequus’s rights and obligations with respect to the use and disclosure of Escrow Materials following a Release Event.

(b)Aequus hereby agrees that the delivery to it of the Escrow Materials in accordance with the Escrow Agreement shall be deemed a disclosure by WorldGate of its Confidential Information and that further disclosure and use of such Escrow Materials shall be subject in all respects to the provisions of the Mutual Confidentiality Agreement, except where otherwise expressly agreed by the Parties in writing, including in another Related Document.  Furthermore, notwithstanding anything to the contrary contained in any other Related Document, Aequus’s rights to utilize the Escrow Materials in connection with the design, configuration, manufacture, operation or maintenance of Purchased Phones shall be limited as follows:

(i)If the Release Event is an SOW Disruption, then Aequus’s rights shall be limited to using relevant Escrow Materials for the sole purpose of accomplishing the technical and operational goals which gave rise to the need for a particular Mandated SOW.

(ii)If the Release Event is a Foreclosure Disruption or an Insolvency Disruption, then Aequus shall have all rights, subject to the restrictions in this Agreement, to use the Escrow Materials to design, configure, manufacture, operate and maintain Purchased Phones (as well as other video phones based on or derived from Purchased Phones) (as the same may be modified by new developments).

(iii)If the Release Event is a Nine-Month Disruption, the Aequus’s rights shall be limited to using relevant Escrow Materials for the sole purpose of manufacturing, operating and maintaining any model of Purchased Phone which is the subject of the Nine-Month Disruption.

(c)The delivery of the Escrow Materials to Aequus shall not imply the grant of any right or license to use the Escrow Materials except as set forth above and such uses shall be authorized only to the extent necessary to permit Aequus to continue providing Services in the Territory to Customers.

2.4No Conflicting Grants.  WorldGate will not knowingly (i) grant, transfer or assign to any person any right or interest in any Licensed IP or related Documentation or (ii) grant to any third party any right to use or exploit any Licensed IP or related Documentation, which in either

4

case would conflict with Aequus’s exclusive rights under Section 2.1(a) and its non-exclusive rights under Section 2.1(b) to use such Licensed IP and related Documentation in connection with the exercise of such rights in accordance with the terms hereof.

2.5Limitations and Exclusions on License.  The Parties acknowledge and agree that, among other things, nothing contained in this Agreement, in the Master Agreement or in any Related Document shall imply that Aequus or any other person or entity has any license, right or interest in the Licensed IP except as expressly provided herein or therein and, except as expressly set forth in this Agreement or otherwise expressly agreed by WorldGate in writing, WorldGate expressly reserves all rights to its intellectual property, and shall not be restricted from developing, manufacturing, selling and/or distributing any product or service, whether alone or jointly with others, or from licensing any technology or intellectual property to any third party.   In particular, except as may be expressly agreed by the Parties in another Related Document or  as otherwise expressly agreed in writing, Aequus shall have no right to use, reproduce or modify the Licensed IP (or to sublicense any third party to do so) in order (i) to manufacture, provide or facilitate the use of Purchased Phones other than as expressly permitted under this Agreement or to manufacture, provide or facilitate the use of video phone products other than Purchased Phones, or (ii) to facilitate or control the access by and/or operation of Purchased Phones with other products and services, including without limitation other video phone services and/or VoIP services.  Aequus shall not, either directly or through any third party, (x) decompile, disassemble or otherwise reverse engineer any Licensed Proprietary Materials, (y) remove any proprietary legends and/or copyright legends or restrictions which are in the Licensed Proprietary Materials as originally supplied to Aequus hereunder, or (z) except as expressly authorized under the Master Agreement and in connection with a release of Escrowed Materials to Aequus pursuant to the Software Escrow Agreement which is one of the Related Documents, make any copies of, alterations to, or other derivatives of the Licensed IP

2.6Treatment of the License Under Section 365(n) of the Bankruptcy Code.  The Licensed IP licensed under this Agreement consists of, and shall be deemed for all purposes to be, “intellectual property” within the meaning of Section 101(35A) of title 11, United States Code (the “Bankruptcy Code”).  Upon commencement of a case under the Bankruptcy Code by or against WorldGate, the license of the Licensed IP granted under or pursuant to this Agreement shall be

5

governed by Section 365(n) of the Bankruptcy Code, and Aequus shall be entitled to the protections of Section 365(n).  If the Agreement is rejected under Section 365 of the Bankruptcy Code in a case commenced by or against WorldGate, then Aequus, as the licensee of the Licensed IP under this Agreement, shall retain and may fully exercise, in its sole discretion, all of the rights and entitlements granted or afforded under Section 365(n) of the Bankruptcy Code, including any election which it is entitled to make thereunder.

2.7License Fee.  Commencing with the Second Contract Year, Aequus shall pay the License Fee to WorldGate in accordance with Section 3.3 no later than three (3) days after receipt by Aequus of the VRS Reimbursement Revenue for any month in which Customers utilize video relay services (each a “Service Month”); provided, however, that the amount of the License Fee which shall be paid with respect to any Contract Year of the Term shall not exceed fifty thousand dollars ($50,000).

3.Software Support Services

3.1During the first Contract Year, and thereafter so long as Aequus pays the Maintenance and Update Services Fee, WorldGate shall provide to Aequus all Software Support Services.  In consideration of all Software Support Services provided hereunder, commencing with the second Contract Year, Aequus shall pay the Maintenance and Update Services Fee to WorldGate in accordance with Section 3.3 no later than three (3) days after receipt of the VRS Reimbursement Revenue for any Service Month; provided, however, that the amount of the Maintenance and Update Services Fee which shall be paid with respect to any Contract Year shall not exceed three hundred fifty thousand dollars ($350,000).

3.2During the Term, so long as Aequus pays the Tier 2 Support Services Fee, WorldGate shall provide the Tier 2 Support Services.  In consideration of the Tier 2 Support Services, commencing after the Effective Date, Aequus shall pay the Tier 2 Support Fee to WorldGate in accordance with Section 3.3 no later than thirty (30) days after the last day of each Service Month.

3.3In order to account and pay for the License Fee, the Maintenance and Update Services Fee and the Tier 2 Support Fee, Aequus shall:

6

(i)following the close of each calendar month during the Term, commencing with the Second Contract Year, notify WorldGate either (A) when Aequus has submitted an invoice to the National Exchange Carrier Association (NECA) for VRS Reimbursement Revenue earned during such month if such month is a Service Month, including in such notice a copy of such invoice or (B) that no Customers utilized video relay services for such month;

(ii)within thirty (30) days after the last day of each Service Month during the term of this Agreement and within thirty (30) days after the date of termination hereof, deliver to WorldGate a written statement setting forth the Tier 2 Support Fee due and payable to WorldGate, together with payment of the amount of the Tier 2 Support Fee shown to be due and payable to WorldGate; and

(iii)not later than three (3) days after receipt of any VRS Reimbursement Revenue, send a statement reflecting the amount of VRS Reimbursement Revenue received, together with payment of the License Fee and the Maintenance and Update Services Fee due in connection with such VRS Reimbursement Revenue.

(B)All payments to WorldGate under this Agreement shall be made in United States dollars and shall be transmitted by wire transfer directly to the bank or place designated in writing by WorldGate.

7

(C)Aequus shall keep and maintain accurate books and records with respect to all VRS Reimbursement Revenues License Fees, and Tier 2 Support Fees.  Said books and records shall be available for inspection and copying by an independent auditor specified by WorldGate and reasonably acceptable to Aequus, not more frequently than once each Contract Year during the Term and once during the one year period following the termination of this Agreement, during ordinary business hours upon a minimum of thirty (30) days prior written notice from WorldGate to Aequus.  In the event that any such review reveals an underpayment, Aequus shall immediately remit payment to WorldGate in the amount of such underpayment plus interest calculated at the rate of one percent (1%) per month, accruing from the date such payment(s) was actually due until the date when such payment(s) is actually made.  Should any review establish an underpayment in an amount greater than or equal to five percent (5%) of the amount properly due, Aequus shall pay all reasonable costs, expenses and fees incurred by WorldGate in connection with the audit.  Aequus shall keep such accounts and records for at least three (3) years after termination of this Agreement or four (4) years after the end of the Contract Year to which they relate, whichever is earlier.  The individual or entity conducting any audits hereunder shall be bound by reasonable obligations of confidentiality in respect of any information disclosed by such audits.  Notwithstanding the foregoing, WorldGate shall not have any audit rights with respect to VRS Reimbursement Revenue and related fees based on such revenue with respect to any Contract Year during the Term for which Aequus has paid both the maximum License Fee of fifty thousand dollars ($50,000), and the maximum Maintenance and Update Services Fee of three hundred fifty thousand dollars ($350,000).

(D)Amounts properly due and owing but not timely paid to WorldGate pursuant to this Agreement shall bear interest calculated at the rate of one percent (1%) per month accruing from the date the relevant payment(s) were actually due until the date when such payment(s), including interest thereon, are actually made.

4.Service Coordinator

WorldGate and Aequus will each designate a service coordinator (each a “Service Coordinator”), who will have primary responsibility for communicating with respect to that

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Party’s performance hereunder.  Each Party may replace its Service Coordinator with a comparable replacement by giving the other Party as much advance written notice as practicable of such replacement.  Each Party shall be entitled to rely on all decisions and approvals of the other Party communicated by the other Party’s Service Coordinator.  The general responsibilities of the Service Coordinator shall be to: (a) establish a formal communication forum between WorldGate and Aequus with respect to the work hereunder; and (b) monitor the general progress of the performance of such work.

5.Work Product.

5.1Ownership of Work Product.  Unless otherwise specifically agreed in an SOW, each Party will retain all right, title and interest in its own Work Product; provided that such ownership rights will not extend to any Confidential Information of the other party that may have been incorporated into the Work Product; and provided further, that WorldGate’s ownership of its Work Product shall be subject to its obligations under this Agreement to license such Work Product to Aequus and under a certain Software Escrow Agreement (the “Escrow Agreement”) to deposit relevant Source Code, Object Code and related Software Documentation into escrow, as more specifically set forth and to the extent permitted in such agreements.

5.2Customer Data.  As between the Parties, Aequus will be the sole and exclusive owner of all databases, information and metadata (including without limitation information identifying or otherwise relating to its Customers), provided to WorldGate by Aequus or otherwise accessed by WorldGate in the course of providing the Support Services (collectively, the “Aequus Data”).  WorldGate shall utilize Aequus Data solely for purposes of this Agreement and shall not sell, transfer, lease, or otherwise commercially exploit Aequus Data.  Aequus Data will be deemed Aequus’s Confidential Information.  WorldGate is not responsible for the accuracy, completeness, or currency of data provided by Aequus.

6.Aequus’s Responsibilities

Aequus shall, in connection with this Agreement, be responsible for designating its Service Coordinator, as provided in Section 3 hereof, and for performing such other duties and tasks as may

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be reasonably required to permit WorldGate to perform its duties, tasks, and obligations hereunder.  During the term of that Related Document constituting the Transition Services Agreement, responsibility for hardware and software shall be allocated in accordance with such Transition Services Agreement.  Upon termination of such Transition Services Agreement, unless otherwise agreed by the Parties in writing, Aequus shall have sole responsibility for any hardware or third party software acquired, installed or used by Aequus in connection with the maintenance or operation of any Data Center Network.

7.Relationship of Parties

The Parties acknowledge and agree that WorldGate is an independent contractor, and that the personnel used by WorldGate in connection with any Support Services performed by WorldGate pursuant to this Agreement are not employees of Aequus and shall not be entitled to any benefits provided to, or rights afforded by, Aequus or its Affiliates to its employees, whether by operation of law or otherwise.  Aequus shall make no deductions for fees paid to WorldGate for any state, federal, or local taxes including, but not limited to, deductions for income tax withholdings and social security taxes.  WorldGate shall be responsible for the income tax withholdings and other payments related to its own personnel.

8.Subcontractors

Aequus acknowledges and agrees that WorldGate may retain the services of independent consultants reasonably acceptable to Aequus (“Subcontractors”) from time to time to perform, or assist WorldGate in performing, Support Services under this Agreement.  All Subcontractors shall perform such Support Services under WorldGate’s direction and control.

9.WorldGate Personnel

WorldGate shall have exclusive authority to make staffing decisions with respect to its personnel and the provision of Support Services under this Agreement.  WorldGate reserves the right to reassign any of its personnel; provided, however, that in the event of any such reassignment, the Support Services shall continue to be provided in accordance with the terms of

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this Agreement.  Notwithstanding the above, in the event any personnel of WorldGate or any Subcontractors are afforded access to Aequus Data or any Data Center Network, WorldGate shall be responsible for any action or omission of such personnel which fails to comply with any security or confidentiality provisions of this Agreement or the standard policies of Aequus governing security or personal conduct in the office place of which WorldGate has been advised in writing.  In the event of such failure to comply with such provisions or policies regardless of whether WorldGate has been advised thereof, WorldGate shall, immediately upon the request of Aequus, replace such personnel with other comparably qualified personnel.  Aequus acknowledges and agrees that any required replacement of personnel may delay WorldGate’s performance hereunder.

10.Representations and Warranties

10.1.Warranties of WorldGate.  WorldGate covenants and warrants that:  (i) each of its personnel who performs Support Services shall have the proper skill, training, and background necessary to accomplish the Support Services assigned to them, (ii) all Support Services shall be performed in a competent, professional and workmanlike manner, by qualified personnel, and (iii) WorldGate shall use due care, but in any event at least the same degree of care as is customary in the software development industry, to ensure that (except as expressly authorized by Aequus in writing) any Software provided to Aequus pursuant to this Agreement, and all media used to distribute such Software, do not contain any instructions, codes, programs, data or other material (A) as to which WorldGate has received written notice of any claim of infringement or (B) which is used by or at the direction of WorldGate to disrupt, damage or interfere with Aequus’s lawful use of the Data Center Network or Purchased Phones (including without limitation protective, encryption, security or lock-out devices, viruses, trojan horses, trap or back-doors, computer instructions, circuitry or other technological means).

10.2.Representations and Warranties of the Parties.  Each Party warrants to the other Party that:  (a) it has the requisite power, authority, and resources to enter into this Agreement, and to perform its obligations hereunder, and (b) this Agreement is a valid and binding obligation of such Party, enforceable against such Party in accordance with the terms and conditions hereof and thereof, and does not conflict with any other obligation of such Party.

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10.3.DISCLAIMER.  THIS SECTION 10 SETS FORTH THE ONLY WARRANTIES PROVIDED BY EITHER PARTY CONCERNING THIS AGREEMENT, THE SERVICES TO BE RENDERED, AND WORK PRODUCT TO BE PROVIDED, IF ANY.  THESE WARRANTIES ARE MADE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, NON-INFRINGEMENT, TITLE, OR OTHERWISE.  WORLDGATE MAKES NO REPRESENTATION OR WARRANTY REGARDING THE LICENSED IP OTHER THAN THOSE REPRESENTATIONS AND WARRATIES SET FORTH IN THE MASTER AGREEMENT OR OTHER RELATED DOCUMENT, EACH OF WHICH SHALL BE SUBJECT TO THE LIMITATIONS SPECIFIED IN CONNECTION THEREWITH.

11.Limitation of Liability

11.1.No Liability for Certain Damages.  IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, OR OTHER SIMILAR DAMAGES OR COSTS, INCLUDING LOST PROFITS, ARISING OUT OF OR BASED UPON THIS AGREEMENT, EVEN IF EITHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY REMEDY SET FORTH HEREIN.

11.2.Exclusions.  The limitations set forth in this Section 11 shall not apply to: (a) damages resulting from the breach by a Party of the Mutual Confidentiality Agreement; or (b) the gross negligence or willful misconduct of a Party.

12.Employee Solicitation /Hiring

During the period beginning with the Effective Date hereof and ending nine (9) months after the end of the Term, neither Party will knowingly solicit for employment, directly or indirectly, any employee of the other Party or its Affiliates (which shall include any employee of

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the other Party or its Affiliates who was an employee within the six (6) month period prior to the date hereof).

13.Termination

13.1.Term.  Unless earlier terminated in accordance with this Section 13, this Agreement shall remain in full force and effect until the twentieth (20th) anniversary of the Effective Date, except that this Agreement shall automatically renew with respect to the Licensed IP for subsequent consecutive five (5) year periods (collectively, the “Term”) unless and until Aequus notifies WorldGate of its election not to renew not less than three (3) months prior to the expiration of the then-current period of the Term.

13.2.Breach.

(a)Either Party may at its sole option terminate this Agreement upon written notice effective thirty (30) days after delivery of such notice if the other Party breaches a material obligation under this Agreement or the Master Agreement, and, to the extent cureable, fails to cure such breach within such period or such lesser period as may be set forth in the Master Agreement; provided, however, that unless terminated pursuant to Section 5 of the Master Agreement, if Aequus is otherwise not in breach of this Agreement, (i) WorldGate may only terminate the licenses granted hereunder in accordance with this Section 13.2 if Aequus’s breach is its failure to pay the License Fee when due; (ii) WorldGate may only terminate its obligations to provide Software Support Services in accordance with this Section 13.2 if Aequus’s breach is its failure to pay the Maintenance and Update Services Fee when due, and (iii) WorldGate may only terminate its obligation to provide Tier 2 Support Services in accordance with this Section 13.2 if Aequus’s breach is its failure to pay the Tier 2 Service Fee when due.  Notwithstanding the foregoing, WorldGate acknowledges and agrees that, in the event that WorldGate violates or fails or refuses to perform any covenant or agreement made by it herein, Aequus may be without an adequate remedy at law.  WorldGate agrees, therefore, that in the event that WorldGate violates or fails or refuses to perform any covenant or agreement made by WorldGate herein, Aequus may, subject to the terms of this Agreement and in addition to any remedies at law for damages or other relief, institute and prosecute an action in any court of competent jurisdiction to enforce specific performance of such covenant or agreement or seek any other equitable relief.  If Aequus is the prevailing party in any

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such proceeding, Aequus shall be entitled to reimbursement from WorldGate for all of Aequus’s costs and expenses (including reasonable attorneys’ fees) relating to such proceeding.

(b)Notwithstanding the foregoing, either Party may terminate this Agreement upon five (5) days notice in the event of a breach by the other party related to such other Party’s obligations under the Mutual Confidentiality Agreement.

13.3.Effect of Termination.  Upon termination or expiration of this Agreement or of the licenses granted hereunder in accordance with Section 13.2, without prejudice to any other rights that WorldGate may have, the following shall occur:

(a)Aequus shall immediately cease all use of the Licensed IP and any WorldGate Confidential Information.

(b)Aequus shall promptly return to or destroy (upon WorldGate’s written request), all copies of the Licensed IP.

(c)Each Party shall promptly return to or destroy (upon the Discloser’s written request) the Discloser’s Confidential Information in the Recipient’s possession or control.  Upon the Discloser’s written request, the Recipient will promptly provide the Discloser with a written certification of the Recipient’s compliance with the foregoing.

(d)Notwithstanding anything to the contrary set forth herein, regardless of any expiration or termination of this Agreement, all licenses granted in connection with Purchased Phones or Work Product already purchased and paid for by Aequus prior to such expiration or termination shall remain in full force and effect.

(e)If termination is a result of Aequus’s breach, all of Aequus’s unpaid payment obligations under this Agreement shall immediately become due and payable.

13.4.No Liability on Termination.  To the extent either Party properly terminates this Agreement prior to the end of the Term or if Aequus properly notifies WorldGate of its determination not to renew, the other Party acknowledges that the terminating or non-terminating Party will incur no liability whatsoever for any damage, loss or expenses of any kind the other Party incurs or suffers arising from or incident to any such termination or non-renewal of this Agreement by that Party which complies with the terms of this Agreement, whether or not the terminating or non-renewing Party was aware of any such damage, loss or expenses.

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14.Confidentiality

The Parties acknowledge and agree that it will be necessary for each Party to disclose or make available to the other Party and its employees Confidential Information in the course of the performance of the Support Services.  All such disclosures shall be governed by the Mutual Confidentiality Agreement.

15.Notice

All notices, requests, demands, consents or waivers and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given immediately upon delivery by hand or by electronic transmission (e.g., email or facsimile with immediate confirmation), one (1) business day after being sent if by nationally recognized overnight courier or, if mailed, then four (4) days after being sent by certified or registered mail, return receipt requested with postage prepaid:

(i)If to WorldGate, to:

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, PA 19355

Attention:  Hal Krisbergh, CEO and President

Telecopy:  215-354-1049

Email: hkrisbergh@wgate.com

with a copy to:

Randall Gort, CLO at the same address and telecopy number

Email: rgort@wgate.com

 (ii)If to AEQUUS, to:

Snap Telecommunications Inc.

1 Blue Hill Plaza, 14th Floor

PO Box 1626

Pearl River, NY  10965

Attention: Richard Schatzberg, President

Telecopy: (973) 227-5400

Email: rschatzberg@aequustechnologies.com

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with a copy to:

Pryor Cashman LLP

410 Park Avenue

New York, New York 10022

Attention: Eric M. Hellige, Esq.

Telecopy: (212) 326-0806

Email: ehellige@pryorcashman.com

or, in each case, to such other person or address as any party shall furnish to the other parties in writing.

16.Entire Agreement; Amendments

This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior proposals, understandings, and agreements, whether oral or written between the Parties with respect to the subject matter hereof.  No modification, amendment or supplement to this Agreement shall be effective for any purpose unless agreed to in writing and signed by authorized representatives of the Parties.

17.Waiver

No failure to exercise, and no delay in exercising, on the part of either Party, any right, power or privilege hereunder will operate as a waiver thereof, nor will any Party’s exercise of any right, power or privilege hereunder preclude further exercise of the same right or the exercise of any other right hereunder.

18.Binding

This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

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19.Severability

If any part of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby and shall be enforced to the maximum extent permitted by applicable law.  If any remedy set forth in this Agreement is determined to have failed of its essential purpose, then all other provisions of this Agreement, including the limitations of liability and exclusion of damages, shall remain in full force and effect.

20.Force Majeure

Either Party shall be excused from performance and shall not be liable for any delay, in whole or in part, caused by the occurrence of any contingency beyond the reasonable control either of the excused Party or its subcontractors or suppliers.  These contingencies include, but are not limited to, war, sabotage, insurrection, riot or other act of civil disobedience, act of public enemy, failure or delay in transportation, act of any government or any agency or subdivision thereof affecting the terms hereof, accident, fire, explosion, flood, severe weather or other act of God, or shortage of labor or fuel or raw materials.

21.Governing Law and Venue

The Parties acknowledge and agree that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania as to all matters including, but not limited to, matters of validity, construction, effect, performance and liability, without consideration of conflicts of laws provisions contained therein.  In the event of any dispute between the Parties, (a) if suit shall be brought by Aequus, it shall be brought either in the United States District Court for the Eastern District of Pennsylvania or any state court of the Commonwealth of Pennsylvania and (b) if suit shall be brought by WorldGate, it shall be brought in the either in the United States District Court for the Southern District of New York or any state court of the State of New York.  Each of the Parties waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

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22.Counterparts

This Agreement may be executed simultaneously in two or more original or facsimile counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

23.No Cross Default

A breach or other default under this Agreement by either Party shall not constitute a breach or default under any other agreement between the Parties.

24.Third Parties

Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or corporation other than the Parties hereto and their respective successors or assigns any rights or remedies under or by reason of this Agreement.

25.Assignment

Unless otherwise expressly provided in this Agreement, neither Party may assign its rights (other than the right to receive payments) or delegate its duties and obligations under this Agreement without the prior written consent of the other Party, which will not be unreasonably withheld or delayed; provided, however, that either Party may assign this Agreement, without the need to obtain consent of the other Party, to an affiliate of such Party or to a successor-in-interest to substantially all of the business of that Party to which this Agreement relates by providing written notice to the other Party of such assignee’s agreement to be bound by the terms of this Agreement and to assume all of the rights and obligations of the assigning Party set forth in this Agreement; provided, however, that in no event shall either Party assign this Agreement to an affiliate or successor who is a competitor of the other Party.  Any assignment made in violation of the foregoing provisions shall be deemed null and void and of no force or effect.

26.No Presumption

WorldGate and Aequus have all participated in the negotiation and drafting of this Agreement and have each been represented throughout to their satisfaction by legal counsel of their choosing.  In the event any ambiguity or question of intent or interpretation arises, this

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Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

27.Headings and Subsections

Section headings are provided for convenience of reference and do not constitute part of this Agreement.  Any references to a particular section of this Agreement shall be deemed to include reference to any and all subsections thereof

28.Specific Assistance

If Aequus gives WorldGate written notice that WorldGate’s actions or failure to act may trigger a Release Event, then WorldGate may, in its discretion, provide Aequus with all information, materials, and assistance required to permit Aequus or its third party designee to perform the disputed actions instead of WorldGate.  If Aequus believes that it has not received all  such information and materials within 48 hours after it has delivered such notice to WorldGate, Aequus will deliver to WorldGate a further written notice of such belief and will not deliver written notice of the Release Event to the Escrow Agent for 48 hours after delivery to WorldGate of such second notice.

29.Survival of Obligations

The provisions of Sections that, by their nature or as explicitly stated, are to survive termination of this Agreement shall survive termination hereof.

30.Gender; Tense, Etc

Where the context or construction requires, all words applied in the plural shall be deemed to have been used in the singular, and vice versa; the masculine shall include the feminine and neuter, and vice versa; and the present tense shall include the past and future tense, and vice versa.

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31.Reference to Days

All references to days in this Agreement shall be deemed to refer to calendar days, unless otherwise specified.

[Remainder of Page Intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have caused this License, Maintenance and Update Services Agreement to be executed by their duly authorized representatives as of the date first written.

WorldGate Communications, Inc. Aequus Technologies Corp.

By: By:

Name: Name:

Title: Title:

Ojo Service, LLC Snap Telecommunications Inc.

By: By:

Name: Name:

Title: Title:

Exhibits

A	-	Software Support Services
B	-	Tier 2 Support Services
X	-	Certain Definitions

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EXHIBIT A

DATA CENTER NETWORK SOFTWARE SUPPORT SERVICES

1.Software Support Services

a.WorldGate will, in the course of development, develop software updates, for the WorldGate  data center network.  In order to help maintain a synchronous state between the WorldGate data center network and the Aequus Data Center Network, and keep the centers at the same functional level (as the same may be allowed given the system, hardware and environmental constraints of such centers,) WorldGate will make such software updates available to Aequus for installation on the Aequus Data Center Network.

b.WorldGate will correct failures of the WorldGate code in the Data Center Network systems or as commercially reasonable, assist Aequus staff with their rebuilding or correction of errors in the systems to restore function in accordance with WorldGate specifications and historic customer service levels.  Such corrections shall be provided within the industry accepted time frames.  WorldGate will use commercially reasonable effort to replace Workarounds with a final resolution, in the form of applicable Updates and Upgrades, within industry standard timeframes from when the relevant failure is first reported and reproduced.  In no event shall WorldGate be responsible hereunder for failures caused by (i) any actions or omissions of Aequus, its agents, or its invitees, (ii) the center environment or any hardware components of the center, (iii) any changes made to the WorldGate code by other than WorldGate or its agents, (iv) any failures in other than the most current or the immediate prior release of the WorldGate code.  To the extent WorldGate renders assistance that is not due to a WorldGate code failure such assistance is outside the scope hereof and is separately and independently compensable.

c.Whether WorldGate develops the code release primarily for the Aequus Data Center Network or WorldGate data center network, software changes will be bundled into common upgrade releases, tested, released and applied to both centers unless not applicable.  WorldGate will provide documentation to describe the code release features and application, and will deliver software packages as applicable to update the original RPMs and build media for the changes.

d.WorldGate will use commercially reasonable effort to assist Aequus in the upgrade process for the Aequus Data Center Network.

e.WorldGate will assist in coordinating the upgrades to minimize any disruption of service, including working with Aequus to apply such upgrades to the respective Data Center Networks at mutually agreed to times where possible.

f.Prior to the upgrade, a QA test report will be provided to Aequus for review and their records.  WorldGate will provide guidance for Aequus test planning for the release.

g.WorldGate will provide to Aequus Technical Services on call support (30 minute response) 24 hours a day, 7 days a week, 366 days a year for Network system Class 1 Errors (as defined below).

h.For all other ODC failures, Data Center Network Support Services shall be accessible via phone and email. The WorldGate support team shall be available during normal business hours.  After contacting the support team to report an issue, WorldGate shall commence using commercially reasonable efforts to provide a Workaround or final fix reasonably acceptable to Aequus.  Aequus will also receive notification of resolution of the issue from the WorldGate support team.  The WorldGate support team shall assist Aequus in the installation or implementation of, each such resolution.

For purposes hereof, Class 1 Error means a problem with the Software that renders any Data Center Network “substantially unusable” or materially impairs Aequus or its End User’s ability to use the Software in the ordinary course of its business.  That is, the Software cannot, substantially perform the basic and necessary functions that such Software has historically achieved.

EXHIBIT B

TIER 2 SUPPORT SERVICES

After the Effective Date, Aequus will have access to the Tier 2 Support for the Term.  The Support Services will consist of the following:

1.Support (i) to SNAP TSR/CSR Tier 1 teams for end user installations and problems that cannot be reasonably resolved by such teams with respect to Customer support, and for RMA processes as set forth in the Reseller Agreement.

2.Tier 2 Support Services are to be provided 5 days a week during the hours of 8:00 AM to 5:00 PM Monday – Friday, Eastern Time.

3.Support beyond these hours will only be provided pursuant to a separate SOW.

4.Aequus and WorldGate personnel will document all problems and customer contacts/escalations in the Aequus ticketing system currently RightNow (SNAP to Provide user ID’s.)

5.WorldGate will provide commercially reasonable support, at its election, directly to End Users only in conjunction with the support being provided by the SNAP TSR/CSR Tier 1 teams, and only in the event that such teams have not been able to resolve the problems after a reasonable effort on their part.

6.Aequus will document and WorldGate will evaluate the operating environments in which the WorldGate Phones will be used and recommend unique solutions to enable WorldGate Phones to fully function in such environments using the Snap!VRS Services.  WorldGate will have no responsibility or liability in connection with the cost and provisioning of equipment solutions.

EXHIBIT X

CERTAIN DEFINITIONS

EX-10.14

Exhibit 10.14

REVISED AND RESTATED

AMENDMENT AND MASTER CONTRACT

THIS REVISED AND RESTATED AMENDMENT AND MASTER CONTRACT (“Revised Amendment”) is made and effective this March 31st, 2008, by and between Aequus (as defined in Exhibit X hereto) and WorldGate (as defined in Exhibit X hereto).

1.This Revised Amendment is entered into pursuant to a Master Agreement, dated the date hereof, between the Parties (the “Master Agreement”). This Revised Amendment (a) revises and supplements certain terms of the Reseller Agreement between the Parties dated March 22, 2006 (the “Reseller Agreement”) and the Professional Services Agreement between the Parties dated August 14, 2006 (the “Professional Services Agreement”) (collectively, the “Amended Contracts”) (b) terminates the Video Service Provider Agreement between the Parties dated May 16, 2006 (the “Service Provider Agreement”) and (c) supersedes and replaces in its entirety the Amendment and Master Contract between the Parties, dated June 20, 2007 (the “Prior Amendment”), which Prior Amendment shall hereafter be deemed null and void and of no further force or effect. In the event of conflict between the provisions of this Revised Amendment and that of any Amended Contract or the Prior Amendment, the terms of this Revised Amendment shall control. Except as amended by this Revised Amendment, the terms and conditions of each Amended Contract shall remain in full force and effect and are hereby reaffirmed and considered delivered hereunder.

2.Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meaning ascribed to those terms set forth in Exhibit X attached hereto. Except as otherwise defined herein or in said Exhibit X, all capitalized terms used with reference to the Reseller Agreement and the Professional Services Agreement shall have the meanings ascribed to such terms in the relevant Amended Contract.

3.The Reseller Agreement is hereby amended and restated as follows:

3.1The parties acknowledge and agree that all references to “OJO” in the Professional Services Agreement (as revised by this Revised Amendment) shall be deemed to mean “WorldGate” as defined in Exhibit X hereto and all references to “Reseller” shall be deemed to mean “Aequus” as defined in Exhibit X hereto.

3.2Section 1, APPOINTMENT, is hereby amended to read in its entirety as follows:

1.APPOINTMENT; SCOPE OF RIGHTS

a.Subject to the terms and conditions hereof, OJO hereby grants Reseller, and Reseller accepts, rights (the “Marketing Rights”) to use, market, distribute and sell, in the provision of the Services (as defined in Schedule A) in

the Territory (as defined in Schedule C) to Customers (as defined in Schedule B), any OJO Phone (as defined in Schedule A) offered for commercial sale by OJO other than Third Party Phones (as defined in Schedule A). The Marketing Rights shall be exclusive (the “Exclusive Marketing Rights”) unless and until an event occurs which gives OJO the right to notify Reseller (in accordance with and as permitted under this Agreement) that Reseller’s Marketing Rights have become non-exclusive (the “Non-Exclusive Marketing Rights”). Subject to the terms and conditions hereof,  so long as its Marketing Rights are Exclusive Marketing Rights, Reseller agrees to purchase all of its requirements for video phones for use in providing the Services in the Territory to Customers exclusively from Ojo.  Reseller agrees that, except as otherwise agreed by OJO in writing, it will comply with the policies and programs described in the attached Schedule D (“Policies and Programs”) and the covenants and conditions specified in Schedule E (“Pertinent Conditions”) and the Standard Terms and Conditions for the Purchase of Products attached as Schedule G to this Reseller Agreement.

b.Reseller acknowledges that OJO may from time to time enter into other agreements with third parties (each, a “Third Party”) granting rights in the Territory to resell or distribute one or more models of OJO Phones, including Third Party Phones (each such agreement, an “Other Distribution Agreement”).  In connection with such Other Distribution Agreement and so long as Reseller enjoys Exclusive Marketing Rights as provided herein, OJO agrees to the following:

(i)the end-user license for each OJO Phone to be sold or distributed pursuant to such Other Distribution Agreement (“Other Phones”) shall prohibit the end-user from using such OJO Phone in connection with the Services in the Territory and WorldGate will cause such end-user license to be incorporated in such Other Distribution Agreement as an attachment or exhibit thereto;

(ii)prior to the execution by OJO of such Other Distribution Agreement, it will use commercially reasonable efforts to include in such Other Distribution Agreement (A) an acknowledgement by such Third Party that OJO has granted to Reseller the exclusive right to market, distribute, use and sell video phones incorporating OJO technology in connection with providing the Services in the Territory to Customers and (B) a covenant that such Third Party will not market, distribute, use or sell any Third Party Phone in connection with providing the Services in the Territory to Customers and (C) an acknowledgment by such Third Party that Reseller is a third party beneficiary of such restriction.

c.Ojo may, at its sole election, by written notice either (i) unilaterally cause the Exclusive Marketing Rights to become Non-Exclusive Marketing Rights or (ii) terminate this Agreement, in either case only if Reseller’s cumulative purchases of Products through the end of the most recently concluded quarter included under Schedule F – Anticipated Sales Levels (the

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“Benchmark Quarter”), total less than seventy percent (70%) of the cumulative Anticipated Sales Levels for all quarters included under said Schedule F to and including the Benchmark Quarter.

d.Ojo shall keep Reseller reasonably informed of its development plans regarding Ojo Phones (as defined below), including but not limited to providing Reseller no less often than twice per year with a two-year projection for development of new features and functions for existing or new models of  Ojo Phones (the “Development Plan”). Reseller shall keep Ojo reasonably informed of developments in video phone technology which could be reasonably likely to have a substantial effect on competition in the Services marketplace (“Technology Advances”) and Ojo shall consult with Reseller regarding potential modifications of its Development Plan to address such Technology Advances. Each party shall also keep the other party reasonably informed if another manufacturer or distributor makes a new video phone commercially available which includes one or more Technology Advances (a “New Technology Phone”). Upon request by Reseller, Ojo shall either (i) provide Reseller with a Development Plan (the “New Technology Development Plan”) demonstrating that, within a reasonable time, Ojo will be able to make commercially available a video phone offering substantially the same or superior Technology Advances (an “Advanced Ojo Phone”) or (ii) advise Aequus that it does not intend to make such Advanced Ojo Phone commercially available within a reasonable time. If Ojo advises Reseller that it will make an Advanced Ojo Phone commercially available within a reasonable time thereafter, Reseller’s exclusivity obligations under Section 1(a) shall continue and any purchase by Reseller of New Technology Phones will be a breach thereof. If Ojo advises otherwise or does not provide a New Technology Development Plan within a reasonable time, Reseller shall have the right to purchase New Technology Phones, and such purchases shall not be a breach of its exclusivity obligations under Section 1(a).

e.Notwithstanding the foregoing, if Reseller commences purchasing New Technology Phones pursuant to the foregoing paragraph (d), (i) Ojo may, by written notice to Aequus, cause Reseller’s Exclusive Marketing Rights to be amended so that they thereafter become Non-Exclusive Marketing Rights, if in any period of three (3) consecutive calendar quarters (each, a “Three-Quarter Period”), Reseller’s purchases of Ojo Phones constitutes less than forty percent (40%) of the total number of video phones purchased by and shipped to or on behalf of Aequus during such Three-Quarter Period, and (ii) Ojo may, by written notice to Aequus, terminate this Agreement, if in any Three-Quarter Period Reseller’s purchases of Ojo Phones constitutes less than twenty percent (20%) of the total number of video phones purchased and shipped to or on behalf of Aequus during such Three-Quarter Period.

f.At any time after Reseller commences purchases of New Technology Phones, Ojo may give Reseller notice that Ojo is making an Advanced Ojo Phone commercially available (the “New Ojo Model”). Within thirty (30) days after receiving such Advanced Ojo Phone, Reseller shall advise Ojo whether Reseller intends to commence purchasing the New Ojo Model and cease purchasing New Technology Phones upon expiration of any then-current binding purchase commitment of Reseller to such other manufacturer or distributor (a “Resumption Notice”). If Reseller timely delivers a Resumption Notice, then within ninety (90) days after delivery to Ojo of such Resumption Notice, Reseller will provide Ojo with a binding purchase order to purchase New Ojo Phones. If Reseller fails to timely deliver a Resumption Notice, Ojo shall thereafter be

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entitled to sell the New Ojo Model to any market and territory without restriction (including for use in providing Services in the Territory to Customers) without breach of its exclusivity obligations under Section 1(a).

3.3Section 2, Term, is hereby amended to read in its entirety as follows:

This Agreement shall commence on the date first set forth above and shall continue until terminated in accordance with Section 4.

3.4Paragraph B of Section 3, Conduct of Operations, is hereby amended to read in its entirety as follows:

B. Reseller shall use diligent, good faith efforts to promote, offer for sale and sell the Products to Customers for use in connection with the Services in the Territory and to seek to achieve the anticipated sales levels set forth in the attached Schedule F (the “Anticipated Sales Levels”). In so doing, Reseller shall take no action which could reasonably be anticipated to diminish the reputation and goodwill of the Products. The parties shall consult and reasonably cooperate in advertising the Products and in offering and fulfilling incentive or other promotional programs with respect to the Products.

3.5Paragraph H of Section 3, Conduct of Operations, is hereby amended by adding at the end thereof the following sentence:

Except as otherwise provided in a certain Master Agreement between the parties or as otherwise provided herein, payment terms for all Products shall be net thirty (30) days from the date of invoice for such Products.

3.6Paragraphs A and B of Section 4, Termination of Agreement, are hereby amended to read in their entirety as follows:

A.Either party may terminate this Agreement for convenience upon one year’s notice. Either Party may terminate this Agreement for cause upon thirty (30) days’ written notice for a material breach of a material term of this Agreement if such breach is not cured within such thirty-day period.

B.Either party (the “Terminating Party”) may terminate this Agreement by written notice to the other party, effective immediately, upon the occurrence of any of the following events: (i) upon the occurrence of any change in the financial condition or management of the other party which is materially adverse to the other party’s ability to perform under this Agreement; (ii) the other party defaults in any agreement providing financing to such party for purposes associated with this Agreement; (iii) the other party engages in a course of conduct which results in such party’s conviction of a felony or which otherwise substantially and adversely affects the Terminating Party’s reputation or its interests in the promotion, marketing or distribution of its products and/or services. In addition,

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OJO shall also have the right to terminate this Agreement if Reseller fails to purchase at least seventy percent (70%) of the cumulative Anticipated Sales Levels for all quarters through a particular Benchmark Quarter or if Aequus’s purchases of Ojo Phones for any Three-Quarter Period constitutes less than twenty percent (20%) of the total number of video phones purchased by and shipped to or on behalf of Aequus during such Three-Quarter Period.

3.7The last two sentences of Paragraph C of Section 4, TERMINATION OF AGREEMENT, are hereby deleted.

3.8The first sentence of Paragraph D of Section 4, TERMINATION OF AGREEMENT, is hereby amended to read in its entirety as follows:

A Party who properly terminates this Agreement prior to the end of the Term in accordance with its terms or who refuses to extend or renew this Agreement beyond its stated expiration date shall not be liable to the other Party for any damage, loss or expenses of any kind which the other Party may incur or suffer arising from or incident to any such termination or non-renewal of this Agreement, whether or not the terminating or non-renewing Party was aware of any such damage, loss or expenses.

3.9There shall be added to Section 4, TERMINATION OF AGREEMENT, the following Paragraph E:

E.The rights and remedies of each party with respect to any breach by the other of this Agreement shall survive any termination of this Agreement and be cumulative with any other rights and remedies of such party with respect to such breach provided by law or in equity; provided, however, that termination of this Reseller Agreement shall not be used as a basis to terminate any other agreement between OJO and Reseller. No waiver of any default will affect any other or subsequent default.

3.10In Section 6, MISCELLANEOUS, the following paragraphs are hereby amended and restated as set forth below: Paragraph A (ENTIRE AGREEMENT; MODIFICATIONS; WAIVERS), Paragraph B (GOVERNING LAW), Paragraph C (Severability), Paragraph F (NOTICE), Paragraph G (ASSIGNMENT) and Paragraph I (CERTAIN REFERENCES; LANGUAGE).

A.  ENTIRE AGREEMENT; MODIFICATIONS; WAIVERS.  This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior proposals, understandings, and agreements, whether oral or written between the Parties with respect to the subject matter hereof.  No modification, amendment or supplement to this Agreement shall be effective for any purpose unless agreed to in writing and signed by authorized representatives of the Parties.  No failure to exercise, and no delay in exercising, on the part of either Party, any right, power or privilege hereunder will

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operate as a waiver thereof, nor will any Party’s exercise of any right, power or privilege hereunder preclude further exercise of the same right or the exercise of any other right hereunder.

B.  GOVERNING LAW; VENUE.  The Parties acknowledge and agree that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania as to all matters including, but not limited to, matters of validity, construction, effect, performance and liability, without consideration of conflicts of laws provisions contained therein or the United Nations Convention on Contracts for the International Sale of Goods. In the event of any dispute between the Parties, (a) if suit shall be brought by Aequus, it shall be brought either in the United States District Court for the Eastern District of Pennsylvania or any state court of the Commonwealth of Pennsylvania and (b) if suit shall be brought by WorldGate, it shall be brought in the either in the United States District Court for the Southern District of New York or any state court of the state of New York. Each of the Parties waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

C.  SEVERABILITY.  If any part of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby and shall be enforced to the maximum extent permitted by applicable law.  If any remedy set forth in this Agreement is determined to have failed of its essential purpose, then all other provisions of this Agreement, including the limitations of liability and exclusion of damages, shall remain in full force and effect.

F.  NOTICES.  All notices, requests, demands, consents or waivers and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given immediately upon delivery by hand or by electronic transmission (e.g., email or facsimile with immediate confirmation), one (1) business day after being sent if by nationally recognized overnight courier or, if mailed, then four (4) days after being sent by certified or registered mail, return receipt requested with postage prepaid:

(i)         If to WorldGate, to:

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, PA 19355

Attention:  Hal Krisbergh, CEO and President

Telecopy:  215-354-1049

Email: hkrisbergh@wgate.com

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with a copy to:

Randall Gort, CLO at the same address and telecopy number

Email: rgort@wgate.com

(ii)       If to AEQUUS, to:

Snap Telecommunications Inc.

1 Blue Hill Plaza, 14th Floor

PO Box 1626

Pearl River, NY  10965

Attention: Richard Schatzberg, President

Telecopy: (973) 227-5400

Email: rschatzberg@aequustechnologies.com

with a copy to:

Pryor Cashman LLP

410 Park Avenue

New York, New York 10022

Attention: Eric M. Hellige, Esq.

Telecopy: (212) 326-0806

Email: ehellige@pryorcashman.com

or, in each case, to such other person or address as any party shall furnish to the other parties in writing.

G.  ASSIGNMENT.  Unless otherwise expressly provided in this Agreement, neither Party may assign its rights (other than the right to receive payments) or delegate its duties and obligations under this Agreement without the prior written consent of the other Party, which will not be unreasonably withheld or delayed; provided, however, that either Party may assign this Agreement, without the need to obtain consent of the other Party, to an Affiliate of such Party or to a successor-in-interest to substantially all of the business of that Party to which this Agreement relates by providing written notice to the other Party of such permitted assignee’s agreement to be bound by the terms of this Agreement and to assume all of the rights and obligations of the assigning Party set forth in this Agreement; provided, however, that in no event shall either Party assign this Agreement to an Affiliate or successor who the Parties have agreed in writing is a Competitor of the other Party.  Any assignment made in violation of the foregoing provisions shall be deemed null and void and of no force or effect.

I.  CERTAIN REFERENCES; LANGUAGE.  Section headings are provided for convenience of reference and do not constitute part of this Agreement.  Any references to a particular section of this Agreement shall be

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deemed to include reference to any and all subsections thereof.  The terms “purchase” and “sell” are used herein for convenience to include the transfer by non-exclusive license of certain specified rights in and to Programs included herein as part of the Products.  Title to such Programs is reserved to OJO and its affiliated companies.  The term “end-user” as used herein means an end user customer that has acquired the Product for such end-user’s personal use and not for resale or distribution to others.  This contract is in the English language.  Any translated version of it is purely for the convenience of the Parties and the English version is controlling.  Each of the Parties has participated in the negotiation and drafting of this Agreement and has been represented throughout to its satisfaction by legal counsel of its choosing.  In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.  This Agreement may be executed simultaneously in two or more original or facsimile counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

3.11The last sentence of Paragraph D, Audits, of Section 6, Miscellaneous, is hereby amended to read in its entirety as follows:

Any such audit or inspection shall occur during regular business hours, but not more than once in any twelve-month period, and shall not unreasonably interfere with Reseller’s business activities.

3.12There shall be added following Section 6, MISCELLANEOUS, Paragraph I, CERTAIN REFERENCES; LANGUAGE, the following provisions:

J.  BINDING.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

K.  FORCE MAJEURE.  Either Party shall be excused from performance and shall not be liable for any delay, in whole or in part, caused by the occurrence of any contingency beyond the reasonable control either of the excused Party or its subcontractors or suppliers.  These contingencies include, but are not limited to, war, sabotage, insurrection, riot or other act of civil disobedience, act of public enemy, failure or delay in transportation, act of any government or any agency or subdivision thereof affecting the terms hereof, accident, fire, explosion, flood, severe weather or other act of God, or shortage of labor or fuel or raw materials.

L.  NO CROSS DEFAULT.  A breach or other default under this Agreement by either Party shall not constitute a breach or default under any other agreement between the Parties.

M.  THIRD PARTIES.  Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer

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upon or give to any person or corporation other than the Parties hereto and their respective successors or assigns any rights or remedies under or by reason of this Agreement.

N.  SURVIVAL OF OBLIGATIONS.  The provisions of Sections that, by their nature or as explicitly stated, are to survive termination of this Agreement shall survive termination hereof.

O.  GENDER; TENSE, ETC  Where the context or construction requires, all words applied in the plural shall be deemed to have been used in the singular, and vice versa; the masculine shall include the feminine and neuter, and vice versa; and the present tense shall include the past and future tense, and vice versa.

P.  REFERENCE TO DAYS.  All references to days in this Agreement shall be deemed to refer to calendar days, unless otherwise specified.

3.13The blank in the first line of the introductory paragraph to the Schedules to the Reseller Agreement is hereby amended to insert the date “March 22, 2006”.

3.14SCHEDULE A, Products, is hereby amended to read in its entirety as follows:

SCHEDULE A – Products and Services

“Product” shall mean any video phone which uses or incorporates any OJO intellectual property (herein sometimes referred to as an “Ojo Phone” or a “WorldGate Phone”) and which OJO is purchasing or has purchased from WorldGate for commercial distribution (a “Purchased Phone”); provided, however, that the term “Products” shall not include any WorldGate Phone as to which WorldGate has entered into an exclusive distribution agreement or marketing arrangement with a Third Party prior to such WorldGate Phone becoming a Purchased Phone (each, a “Third Party Phone”). “Services” shall mean Video Relay Services (VRS) and Video Remote Interpreting (VRI) services.

3.15SCHEDULE B, Customers, is hereby amended to read in its entirety as follows:

1.Inclusion – Any end-user or potential end-user of a Purchased Phone who has a speech and/or hearing impairment and whose ability to engage in telephonic communication requires access to and use of the Services.

2.Exclusion – All other customers.

3.16SCHEDULE C, Territory, is hereby amended to read in its entirety as follows:

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North America (including the United States, its territories, protectorates and possessions, Canada and Mexico), provided that Reseller’s authorization in each country in the Territory shall be subject to the prior receipt by Reseller from the relevant authorities in such country of all approvals necessary to offer VRS/VRI services in such country.

3.17SCHEDULE E, Pertinent Conditions, is hereby amended to read in its entirety as follows:

1.Subject to the limitations set forth in Section 1 of this Reseller Agreement, Ojo expressly reserves the right to itself sell, and to use other distributors, VARs and resellers to sell Products in the Territory to customers other than Customers and to sell Products outside of the Territory to all customers, including Customers. In no event shall Ojo be prohibited from selling and/or otherwise distributing to any customer, including Customers, any products or services other than Products in any country within the Territory.

2.No later than the fifteenth day of each month, Reseller agrees to provide OJO with a forecast for the six-month period beginning with the next following month indicating Reseller’s intended purchases of Products during such six-month period, detailed by individual Product and calendar month of forecasted purchase. Binding purchase orders shall be submitted by Reseller for its required Products in accordance with the terms of Schedule G. The price for such Products shall be WorldGate’s landed cost (currently $280 for the standard Ojo PVP 900R) plus fifteen percent (15%) mark-up. Aequus shall also pay the actual costs of handling (which currently averages about $8 per unit) and shipping such phones to Customers (which currently averages approximately $10 per unit) . Reconciliation will be made within 30 days of its receipt of an invoice therefor.

3.Products purchased after the effective date of this Revised Amendment between the Parties will be warehoused by OJO and drop shipped directly to Customers.

4.The Parties acknowledge that friends and family of end user Customers hereunder may be motivated to purchase Products as a result of sales of Products which are resold or otherwise transferred by Aequus to Customers, and such friends and family may contact Aequus with inquiries to purchase Products for their own use in communicating with Customers. Aequus will refer all such friends and family inquiries to OJO and will otherwise reasonably cooperate with OJO to facilitate Product marketing and sales to such friends and family, and OJO will directly provide the video phone service for such friends and family.

3.18SCHEDULE F, Anticipated Sales Levels, shall be amended to read in its entirety as follows:

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Ongoing per calendar quarter (units):

Quarter 3 – 2007 3000	Quarter 4 - 20071250	Quarter 1 – 20082500	Quarter 2 - 20083250
Quarter 3 - 20083000	Quarter 4 – 20083000	Quarter 1 – 20093000	Quarter 2 – 20093000
Quarter 3 – 20093500	Quarter 4 – 2009 3500	Quarter 1 – 20103500	Quarter 2 – 20103500
Quarter 3 – 20104000	Quarter 4 – 20104000	Quarter 1 – 20114000	Quarter 2 – 20114000
Quarter 3 – 20114250	Quarter 4 – 20114250	Quarter 1 – 20124250	Quarter 2 – 20124250
Quarter 3 – 20124500	Quarter 4 – 20124500	Quarter 1 – 20134500	Quarter 2 – 20134500

The parties agree to propose and implement Anticipated Sales Levels for periods after Quarter 2 – 2013 at appropriate times. Unless and until agreement is reached on Anticipated Sales Levels for any such period, the Anticipated Sales Level for each quarter during such period shall be the Anticipated Sales Level for the most recent quarter which was agreed to.

3.19The first sentence of the first paragraph of SCHEDULE G, Standard Terms and Conditions for the Purchase of Products, is hereby amended to read in its entirety as follows:

These Standard Terms and Conditions for the Purchase of Products (“Standard Terms”) are intended by the parties to govern the purchase of Products (as defined in the Reseller Agreement to which these Standard Terms are attached) from OJO Service, LLC and WorldGate Communications, Inc. as parent and owner of all of the equity of Ojo Service, LLC (collectively, “Ojo”) as SUPPLIER hereunder and to supersede any terms and conditions set forth in any purchase order which are contrary hereto, notwithstanding any statement providing otherwise within any such purchase order.

3.20The second sentence of Paragraph A, Section 1, PURCHASE, PRICE AND PAYMENT, is hereby amended to delete the words “if PURCHASER is in default under any agreement with SUPPLIER or”.

3.21The last sentence of Paragraph B, Section 1, PURCHASE, PRICE AND PAYMENT, is hereby amended by inserting at the end of the sentence, the words, “provided, however, that such modification or substitution complies with all requirements of regulatory authorities in the Territory applicable to the Products.”

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3.22Paragraph A of Section 6, CONFIDENTIAL INFORMATION AND OTHER PROPRIETARY RIGHTS, is hereby amended to read in its entirety as follows:

A.  The Parties have entered into a Mutual Confidentiality Agreement which shall govern the disclosure and use of the Confidential Information (as defined in such agreement) of each of the Parties.

3.23The first sentence of Paragraph D, Section 6, CONFIDENTIAL INFORMATION AND OTHER PROPRIETARY RIGHTS, is hereby amended by inserting at the beginning of the sentence the words, “Except as provided in the License Agreement Terms and Conditions annexed to this Schedule G as Exhibit 1 or as otherwise agreed in writing by SUPPLIER and PURCHASER,”.

3.24In Section 7, MISCELLANEOUS, the following paragraphs are hereby deleted:  Paragraph A (GOVERNING LAW AND VENUE); Paragraph B (SEVERABILITY); Paragraph D (CERTAIN REFERENCES; LANGUAGE); and Paragraph F (FORCE MAJEURE).

3.25The first sentence of Paragraph B, Section 3, ACCEPTANCE AND WARRANTY, is hereby amended by deleting the phrase “as delivered to PURCHASER and for a period of thirteen (13) months from receipt by PURCHASER”, and inserting the phrase, “as delivered to PURCHASER’s end-user customer and for a period of twelve (12) months from receipt by PURCHASER’s end-user customer.”

3.26In Exhibit 1, LICENSE AGREEMENT TERMS AND CONDITIONS, (a) all references to “Licensor” shall be deemed to refer to both OJO Service, LLC and WorldGate Communications, Inc., as parent and owner of all of the equity of Ojo Service, LLC, (b) all references to “Licensee” shall be deemed to refer to both Snap Telecommunications Inc., d/b/a Snap!VRS, and Aequus Technologies Corp., as parent and owner of all of the equity of Snap Telecommunications Inc. and (c) all references to “the Ojo™ video phone” shall be deemed to refer to “Products” (as defined in Schedule A of the Reseller Agreement of which Exhibit 1 is a part).

4.Video Service Provider Agreement

The parties hereby agree that the Video Service Provider Agreement is hereby terminated and shall hereafter be of no further force and effect, with the understanding that the subject matter of such agreement has been subsumed in the Related Documents executed pursuant to the Master Agreement.

5.Professional Services Agreement

5.1The parties acknowledge and agree that all references to “OJO” in the Professional Services Agreement shall mean and include both Ojo Service, LLC and WorldGate Communications, Inc., as parent and owner of all of the equity of Ojo Service, LLC and all

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references to “AEQUUS” shall mean and include Snap Telecommunications Inc., d/b/a Snap!VRS and Aequus Technologies Corp., as parent and owner of all of the equity of Snap Telecommunications Inc.

5.2The reference to “Exhibit 1 – Statement of Work” in the second WHEREAS clause is hereby amended to read “Exhibit 1 – Statement of Work - Software Enhancements for Interoperability, June 6, 2006 (the “Statement of Work”).

5.3Section 1, SERVICES, is hereby amended by designating the first sentence thereof as paragraph “(a)” and adding at the end thereof the following:

(b)From time to time during the term of this Agreement, OJO will provide to Aequus such additional services as are set forth in additional mutually agreed written statements of work (each, an “SOW”) which, for purposes of this Agreement, shall be considered additional “Services.”  The parties agree that “Services” shall include, to the extent specified in an SOW, non-recurring engineering services (“NRE Services”) for Data Center Network (including the ODC) and WorldGate Phones (as such terms are defined in the Exhibit X to this Revised Agreement).  No NRE services shall be performed or compensated except in accordance with mutually agreed SOWs.  Each such SOW shall contain provisions addressing the substance of the Model of Statement of Work annexed as Exhibit 2 to this Agreement, shall be executed by the Parties and upon such execution be deemed part of this Agreement.  If changes are required to be made in the ODC  or other Data Center Network, any Purchased Phone or the Services (as defined in Exhibit X) as a result of any requirement adopted or published by the United States Federal Communications Commission or the equivalent regulatory authority of any other jurisdiction in the Territory (“Mandated Changes”), WorldGate shall be obligated to promptly provide an SOW Proposal for the necessary NRE services which shall be negotiated and agreed upon by the parties in accordance with the following:

i.Aequus shall notify WorldGate in writing of any Mandated Change.  Within thirty (30) days after receiving such notice, WorldGate shall provide Aequus with a proposed Statement of Work (“SOW”) setting forth in reasonable detail the work required to be done to implement the Mandated Change, a timetable for performing such work, the deliverables to result from such work and the costs related thereto (an “SOW Proposal”).  Upon delivery to Aequus of an SOW Proposal for a Mandated Change (a “Mandated SOW”), the parties shall promptly commence diligent and good faith negotiations to agree on the terms and conditions of the Mandated SOW, including (if necessary) the costs of engaging a third party subcontractor by WorldGate to perform services in connection with such Mandated SOW.  If the parties cannot agree on the terms and conditions of the Mandated SOW within seven (7) days following delivery of WorldGate’s initial written proposal, then the parties shall, upon demand by either party, submit the Mandated SOW for determination by an arbitrator in accordance with the following clause (ii).

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ii.If either party demands that the Mandated SOW be submitted for determination by an arbitrator, each party shall submit its most recent proposal (in a form suitable for execution as an SOW, together with recommended amendments to each other Related Document) and any other materials deemed relevant by such party, to the American Arbitration Association or such other independent expert or organization with expertise in the design and development of systems for delivery of video phone services as the parties may agree, such agreement not to be unreasonably withheld, conditioned or delayed.  If such expert determines that WorldGate’s financial terms are commercially reasonable, then Aequus shall be obligated to accept the financial terms of the last proposal made by WorldGate. If such expert determines that WorldGate’s terms are not commercially reasonable, and that Aequus’s terms are commercially reasonable, then WorldGate shall be obligated to accept the financial terms of the last proposal made by Aequus.  The decision of the expert shall be final and binding on the parties, and the proposal determined to be commercially reasonable, together with the amendments to each Related Document submitted by the prevailing party, shall be immediately executed and delivered by the parties and each party shall become bound thereby.  All work to be performed pursuant to a Mandated SOW shall be given priority by WorldGate over any and all other work for which WorldGate may then be obligated.

iii.For purposes of this Agreement, the procedures set forth in clauses (i), (ii) and (iii) are referred to as the “SOW Procedure”.

(c)Provided that Aequus has paid the Initial Payment and remains current in its payments of the Monthly Rights Fee, in accordance with the terms and conditions of the Master Agreement between the Parties, WorldGate will provide Aequus with NRE Services having a value of $75,000 dollars per month (based on the Fully Loaded Cost, as defined below), for a period of twelve months, commencing with the month following the Closing.  Thereafter, Aequus shall pay for all NRE Services at the Fully Loaded Cost.  If Aequus requires less than $75,000 in NRE services during any month of the initial twelve-month period, or in the aggregate less than $900,000 in NRE Services for the entire twelve-month period, WorldGate shall credit such unused amount against future NRE invoices payable by Aequus hereunder, but in no event shall any unused amounts be payable in cash to Aequus.  All SOWs shall provide that NRE services shall be invoiced at Fully Loaded Cost.  “Fully Loaded Cost” as used herein means the direct compensation charges (including fringe benefits) for actual time devoted to performance of services, multiplied by a factor of 1.2 for overhead or such other overhead factor reasonably determined by OJO’s internal accounting in accordance with GAAP.  Aequus shall also pay actual out-of-pocket expenses of WorldGate budgeted for and agreed to in each SOW, including, without limitation, costs of equipment, license fees, software, tools and materials consumed or actually used in providing such services.

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5.4 Section 3, OJO TECHNOLOGY, is hereby deleted in its entirety.

5.5The third sentence of Section 4, CHARGES AND PAYMENTS, is hereby amended to read in its entirety as follows: “AEQUUS will be invoiced at such times as are specified in the relevant SOW.”

5.6The fifth sentence of Section 4, CHARGES AND PAYMENTS, is hereby amended to read in its entirety as follows:

Disputes with respect to invoiced amounts under any SOW shall be deemed waived if not raised in writing within thirty (30) days following completion of all Services under such SOW except to the extent reserved as part of the NRE claim (as described in the Master Agreement).

5.7The first sentence of Section 5, TERMINATION, is hereby amended to read in its entirety as follows:

This entire Agreement and/or any individual SOW hereunder may be terminated under the following conditions and in the manner specified: (i) ten (10) days following notice by OJO of non-payment of any amount due hereunder or thirty (30) days following notice of any other material breach from the injured party, if such breach has not been cured within the applicable time period, (ii) immediately upon written notice, in the event that either party files for bankruptcy or for some similar process of protection against creditors or (iii) as may be mutually agreed in writing.

5.8Section 8, SEVERABILITY, Section 9, FORCE MAJEURE; Section 10, NOTICES; and Section 11, GOVERNING LAW AND VENUE are hereby amended in their entirety as follows:

8.  SEVERABILITY.  If any part of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby and shall be enforced to the maximum extent permitted by applicable law.  If any remedy set forth in this Agreement is determined to have failed of its essential purpose, then all other provisions of this Agreement, including the limitations of liability and exclusion of damages, shall remain in full force and effect.

9.  FORCE MAJEURE.  Either Party shall be excused from performance and shall not be liable for any delay, in whole or in part, caused by the occurrence of any contingency beyond the reasonable control either of the excused Party or its subcontractors or suppliers.  These contingencies include, but are not limited to, war, sabotage, insurrection, riot or other act of civil disobedience, act of public enemy, failure or delay in transportation, act of any government or any agency or subdivision thereof affecting the terms hereof, accident, fire, explosion, flood, severe weather or other act of God, or shortage of labor or fuel or raw materials.

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10.  NOTICES.  All notices, requests, demands, consents or waivers and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given immediately upon delivery by hand or by electronic transmission (e.g., email or facsimile with immediate confirmation), one (1) business day after being sent if by nationally recognized overnight courier or, if mailed, then four (4) days after being sent by certified or registered mail, return receipt requested with postage prepaid:

(i)If to WorldGate, to:

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, PA 19355

Attention:  Hal Krisbergh, CEO and President

Telecopy:  215-354-1049

Email: hkrisbergh@wgate.com

with a copy to:

Randall Gort, CLO at the same address and telecopy number

Email: rgort@wgate.com

(ii)           If to AEQUUS, to:

Snap Telecommunications Inc.

1 Blue Hill Plaza, 14th Floor

PO Box 1626

Pearl River, NY  10965

Attention: Richard Schatzberg, President

Telecopy: (973) 227-5400

Email: rschatzberg@aequustechnologies.com

with a copy to:

Pryor Cashman LLP

410 Park Avenue

New York, New York 10022

Attention: Eric M. Hellige, Esq.

Telecopy: (212) 326-0806

Email: ehellige@pryorcashman.com

or, in each case, to such other person or address as any Party shall furnish to the other Parties in writing.

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11.  GOVERNING LAW.  The Parties acknowledge and agree that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania as to all matters including, but not limited to, matters of validity, construction, effect, performance and liability, without consideration of conflicts of laws provisions contained therein.  In the event of any dispute between the Parties, (a) if suit shall be brought by Aequus, it shall be brought either in the United States District Court for the Eastern District of Pennsylvania or any state court of the Commonwealth of Pennsylvania and (b) if suit shall be brought by WorldGate, it shall be brought in the either in the United States District Court for the Southern District of New York or any state court of the state of New York.  Each of the Parties waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

5.9There shall be added following Section 11, GOVERNING LAW, the following provisions:

12.ENTIRE AGREEMENT; AMENDMENTS.  This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior proposals, understandings, and agreements, whether oral or written between the Parties with respect to the subject matter hereof.  No modification, amendment or supplement to this Agreement shall be effective for any purpose unless agreed to in writing and signed by authorized representatives of the Parties.

13.WAIVER.  No failure to exercise, and no delay in exercising, on the part of either Party, any right, power or privilege hereunder will operate as a waiver thereof, nor will any Party’s exercise of any right, power or privilege hereunder preclude further exercise of the same right or the exercise of any other right hereunder.

14.  BINDING.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

15.COUNTERPARTS.  This Agreement may be executed simultaneously in two or more original or facsimile counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

16.NO CROSS DEFAULT.  A breach or other default under this Agreement by either Party shall not constitute a breach or default under any other agreement between the Parties.

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17.THIRD PARTIES.  Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or corporation other than the Parties hereto and their respective successors or assigns any rights or remedies under or by reason of this Agreement.

18.ASSIGNMENT.  Unless otherwise expressly provided in this Agreement, neither Party may assign its rights (other than the right to receive payments) or delegate its duties and obligations under this Agreement without the prior written consent of the other Party, which will not be unreasonably withheld or delayed; provided, however, that either Party may assign this Agreement, without the need to obtain consent of the other Party, to an Affiliate of such Party or to a successor-in-interest to substantially all of the business of that Party to which this Agreement relates by providing written notice to the other Party of such permitted assignee’s agreement to be bound by the terms of this Agreement and to assume all of the rights and obligations of the assigning Party set forth in this Agreement; provided, however, that in no event shall either Party assign this Agreement to an Affiliate or Successor who the Parties agree in writing is a Competitor of the other Party.  Any assignment made in violation of the foregoing provisions shall be deemed null and void and of no force or effect.

19.NO PRESUMPTION.  Each of the Parties have all participated in the negotiation and drafting of this Agreement and each has been represented throughout to their satisfaction by legal counsel of their choosing.  In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

20.HEADINGS AND SUBSECTIONS.  Section headings are provided for convenience of reference and do not constitute part of this Agreement.  Any references to a particular section of this Agreement shall be deemed to include reference to any and all subsections thereof Survival of Obligations.  The provisions of Sections that, by their nature or as explicitly stated, are to survive termination of this Agreement shall survive termination hereof.

21.GENDER; TENSE, ETC  Where the context or construction requires, all words applied in the plural shall be deemed to have been used in the singular, and vice versa; the masculine shall include the feminine and neuter, and vice versa; and the present tense shall include the past and future tense, and vice versa.

22.REFERENCE TO DAYS.  All references to days in this Agreement shall be deemed to refer to calendar days, unless otherwise specified.

5.10The Statement of Work - Software Enhancements for Interoperability dated June 6, 2006, which has been closed as the result of the completion of all required

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activities was previously amended to (i) waive payments C and D under the section entitled Required NRE Payments, and (ii) elimination of requirements of section entitled POTENTIAL RECOVERY OF PORTION OF NRE PAYMENTS and (iii) provide that OJO, will, to the extent reasonably feasible, work with Aequus to allow the OJO video phone to take advantage of WorldGate proprietary compression schemes with the Snap!VRS ACD.  It is understood, however, that there will be no disclosure, directly or indirectly, of this proprietary technology to Aupix.

5.11There shall be added after EXHIBIT 1 – STATEMENT OF WORK – SOFTWARE ENHANCEMENTS FOR INTEROPERABILITY, JUNE 6, 2006, which is incorporated by reference into the Professional Services Agreement, EXHIBIT 2, FORM OF STATEMENT OF WORK in the form annexed to this Revised Amendment as Appendix 1.

6.Miscellaneous Provisions

(a)        Notices.  All notices, requests, demands, consents or waivers and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given immediately upon delivery by hand or by electronic transmission (e.g., email or facsimile with immediate confirmation), one (1) business day after being sent if by nationally recognized overnight courier or, if mailed, then four (4) days after being sent by certified or registered mail, return receipt requested with postage prepaid:

(i)   If to WorldGate, to:

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, PA 19355

Attention:  Hal Krisbergh, CEO and President

Telecopy:  215-354-1049

Email: hkrisbergh@wgate.com

with a copy to:

Randall Gort, CLO at the same address and telecopy number

Email: rgort@wgate.com

(ii)If to AEQUUS, to:

Snap Telecommunications Inc.

1 Blue Hill Plaza, 14th Floor

PO Box 1626

Pearl River, NY  10965

Attention: Richard Schatzberg, President

Telecopy: (973) 227-5400

Email: rschatzberg@aequustechnologies.com

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with a copy to:

Pryor Cashman LLP

410 Park Avenue

New York, New York 10022

Attention: Eric M. Hellige, Esq.

Telecopy: (212) 326-0806

Email: ehellige@pryorcashman.com

or, in each case, to such other person or address as any party shall furnish to the other parties in writing.

(b)        Binding.  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

(c)        Assignment.  Unless otherwise expressly provided in this Agreement, neither Party may assign its rights (other than the right to receive payments) or delegate its duties and obligations under this Agreement without the prior written consent of the other Party, which will not be unreasonably withheld or delayed; provided, however, that either Party may assign this Agreement, without the need to obtain consent of the other Party, to an Affiliate of such Party or to a successor-in-interest to substantially all of the business of that Party to which this Agreement relates by providing written notice to the other Party of such permitted assignee’s agreement to be bound by the terms of this Agreement and to assume all of the rights and obligations of the assigning Party set forth in this Agreement; provided, however, that in no event shall either Party assign this Agreement to an Affiliate or Successor who is a Competitor of the other Party.  Any assignment made in violation of the foregoing provisions shall be deemed null and void and of no force or effect.

(d)        Severability.  If any part of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby and shall be enforced to the maximum extent permitted by applicable law.  If any remedy set forth in this Agreement is determined to have failed of its essential purpose, then all other provisions of this Agreement, including the limitations of liability and exclusion of damages, shall remain in full force and effect.

(e)        Governing Law.  The Parties acknowledge and agree that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania as to all matters including, but not limited to, matters of validity, construction, effect, performance and liability, without consideration of conflicts of laws provisions contained therein.  In the event of any dispute between the Parties, (a) if suit shall be brought by Aequus, it shall be brought either in the United States District Court for the Eastern District of Pennsylvania or any state court of the Commonwealth of Pennsylvania and (b) if suit shall be brought by WorldGate, it shall be

20

brought in the either in the United States District Court for the Southern District of New York or any state court of the state of New York.  Each of the Parties waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

(f)         Counterparts.  This Agreement may be executed simultaneously in two or more original or facsimile counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(g)        Entire Agreement; Amendments.  This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior proposals, understandings, and agreements, whether oral or written between the Parties with respect to the subject matter hereof.  No modification, amendment or supplement to this Agreement shall be effective for any purpose unless agreed to in writing and signed by authorized representatives of the Parties.

(h)        Waiver.  No failure to exercise, and no delay in exercising, on the part of either Party, any right, power or privilege hereunder will operate as a waiver thereof, nor will any Party’s exercise of any right, power or privilege hereunder preclude further exercise of the same right or the exercise of any other right hereunder.

(i)         Third Parties.  Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or corporation other than the Parties hereto and their respective successors or assigns any rights or remedies under or by reason of this Agreement.

(j)         No Presumption.  The Sellers and the Purchaser have all participated in the negotiation and drafting of this Agreement and have each been represented throughout to their satisfaction by legal counsel of their choosing.  In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

(k)        Force Majeure.  Either Party shall be excused from performance and shall not be liable for any delay, in whole or in part, caused by the occurrence of any contingency beyond the reasonable control either of the excused Party or its subcontractors or suppliers.  These contingencies include, but are not limited to, war, sabotage, insurrection, riot or other act of civil disobedience, act of public enemy, failure or delay in transportation, act of any government or any agency or subdivision thereof affecting the terms hereof, accident, fire, explosion, flood, severe weather or other act of God, or shortage of labor or fuel or raw materials.

(l)         No Cross Default.  A breach or other default under this Agreement by either Party shall not constitute a breach or default under any other agreement between the Parties.

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(m)       Headings and Subsections.  Section headings are provided for convenience of reference and do not constitute part of this Agreement.  Any references to a particular section of this Agreement shall be deemed to include reference to any and all subsections thereof

(n)        Survival of Obligations.  The provisions of Sections that, by their nature or as explicitly stated, are to survive termination of this Agreement shall survive termination hereof.

(o)        Gender; Tense, Etc  Where the context or construction requires, all words applied in the plural shall be deemed to have been used in the singular, and vice versa; the masculine shall include the feminine and neuter, and vice versa; and the present tense shall include the past and future tense, and vice versa.

(p)        Reference to Days.  All references to days in this Agreement shall be deemed to refer to calendar days, unless otherwise specified.

[Signatures on following page.]

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IN WITNESS WHEREOF, the authorized representatives of the parties hereto have duly executed this Revised Amendment on behalf of the parties on the date first written above.

Aequus Technologies, Corp.		OJO Service LLC
By:		By:
Name:	Richard Schatzberg	Name:	Hal Krisbergh
Address:	1 Blue Hill Plaza, 14th Floor	Address:	3190 Tremont Avenue
	PO Box 1626		Suite 100
	Pearl River, NY  10965		Trevose, PA  19020
Title:	Chief Executive Officer	Title:	Chief Executive Officer
Tel.:	845-652-7101	Tel.:	215-354-5100
Fax::	845-652-7109	Fax::	215-354-1049
E-mail:	rschatzberg@aequustechnologies.com	E-Mail:	hkrisbergh@wgate.com
Snap Telecommunication Inc.		WorldGate Communications, Inc.
By:		By:
Name:	Richard Schatzberg	Name:	Hal Krisbergh
Address:	1 Blue Hill Plaza, 14th Floor	Address:	3190 Tremont Avenue
	PO Box 1626		Suite 100
	Pearl River, NY  10965		Trevose, PA  19020
Title:	Chief Executive Officer	Title:	Chief Executive Officer
Tel.:	845-652-7101	Tel.:	215-354-5100
Fax::	845-652-7109	Fax::	215-354-1049
E-mail:	rschatzberg@aequustechnologies.com	E-Mail:	hkrisbergh@wgate.com

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EX-10.15

EXHIBIT 10.15

Execution Version

MASTER AGREEMENT

This Master Agreement (“Master Agreement”) is made this 31st day of March, 2008 between Aequus (as defined in Exhibit X hereto), and WorldGate (as defined in Exhibit X hereto).

WHEREAS, Aequus and WorldGate have previously entered into certain contracts, including without limitation a Reseller Agreement, dated March 22, 2006; a Video Service Provider Agreement, dated May 16, 2006; a Professional Services Agreement, dated August 14, 2006; and an Amendment and Master Contract dated June 20, 2007 (collectively, the “Contracts”);

WHEREAS, certain disputes have arisen between the Parties regarding the services and payments required under the Contracts, including, without limitation, whether such Contracts have been terminated or breached (the “Disputes”);

WHEREAS, in connection with the Disputes, WorldGate has asserted claims against Aequus for certain expenses related to non-recurring engineering services (“NRE Services”), totaling in excess of $1 million;

WHEREAS, WorldGate has taken actions that have shut down the phone service it had been providing to Aequus under the Contracts;

WHEREAS, in connection with such disputes, Aequus filed an action against WorldGate in the Supreme Court of the State of New York, County of Rockland, captioned Aequus Technologies Corp., and Snap Telecommunications Inc., d/b/a Snap!VRS v. WorldGate Communications, Inc., and OJO Service, LLC– Index No. 258/08 (the “Action”), in which, among other things, Aequus sought damages and permanent injunctive relief preventing WorldGate from disabling, terminating or otherwise interfering with its Phone Service (as defined below);

WHEREAS, without any admission of liability by either Aequus or WorldGate, the Parties have decided to resolve all outstanding disputes between them (except, as set forth below, regarding WorldGate’s claim for NRE expenses) by executing this Master Agreement together with the Related Documents (as defined in Exhibit X);

WHEREAS, this Master Agreement sets forth only those terms of the parties understanding which are not otherwise addressed in one or more of the Related Documents;

WHEREAS, if not otherwise defined herein, capitalized terms used in this Master Document shall have the meaning ascribed to such terms in Exhibit X hereto.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged and in consideration of the premises and mutual covenants and agreements set forth herein, the Parties, intending to be mutually and legally bound, hereby agree as follows:

1.This Master Agreement shall not be deemed to be fully executed and delivered unless and until each of the Related Documents has itself been executed and delivered, all of which shall occur at Closing.  This Master Agreement, together with the Related Documents, shall constitute the entire understanding agreed to by the parties with respect to their rights and obligations with respect to one another from and after the date hereof (except as otherwise hereafter agreed by them in writing) and (except to the extent preserved in the Revised Amendment) shall supercede all prior understandings and agreements between them of any kind, all of which (subject to the foregoing exception) shall terminate and be of no further force and effect following the Closing.  For clarity, the Resellers Agreement and the Professional Services Agreement, as revised by the Revised Amendment, shall survive the Closing.

2.a.At the Closing, Aequus shall purchase 950 units of the OJO video phone at a purchase price of 316.25 per phone (which price represents WorldGate’s cost plus fifteen percent (15%) mark-up, but excluding handling (approximately $8/unit) and shipping (approximately $10/unit) to Aequus or Aequus’ customer); provided, however, that the number of units to be purchased at Closing shall be reduced by 317 for each $100,000 paid to WorldGate by Aequus since the commencement of the Action but prior to Closing (the “Pre-Closing Payments”).  The aggregate Purchase Price for such phones in the amount of $300,437.50 shall be paid by Aequus at the Closing; provided, however, that the aggregate Purchase Price shall be reduced by all Pre-Closing Payments.  Aequus shall also pay the actual costs of shipping and handling such phones within 30 days of its receipt of an invoice therefor.

b.             At the Closing, Aequus shall also purchase all of WorldGate’s remaining current inventory of the OJO phone, approximately 3,650 units.  The purchase price for such additional phones shall be $322 per phone for 3,500 units and $316.25 for 150 units (which prices represent WorldGate’s cost, other than shipping and handling, plus fifteen percent (15%) mark-up), for a total of $1,174,437.50.  At the Closing, Aequus shall deliver and execute a promissory note in the principal amount of the Purchase Price, as adjusted by this Section 2(b), in substantially the form of Attachment A, in payment for such additional purchases.  Aequus shall also pay the actual costs of the handling and shipping for the delivery of the Bailed Property to another warehouse designated by Aequus (or to Aequus Customers, if requested by Aequus) within 30 days of its receipt of an invoice therefor.

c.             WorldGate agrees to hold such additional phones (the “Bailed Property”) under bailment for the benefit of Aequus until such time as Aequus designates an alternative warehouse for storage of the Bailed Property.  Immediately after the Closing, title to the Bailed Property shall vest in and at all times remain vested in Aequus.  WorldGate shall store all Bailed Property in WorldGate’s warehouse facilities in a secure location, and shall segregate, identify and designate such Bailed Property as owned by Aequus, including without limitation: (i) designating all Bailed Property as Aequus property in WorldGate’s inventory records, including computer database; (ii) maintaining the Bailed Property in an identifiable and segregated fashion so as to permit Aequus or others to easily and accurately identify the Bailed Property owned by

2

Aequus, and (iii) segregating tracking of the Bailed Property inventory so as to permit WorldGate to generate separate sales and inventory reports, provided, however, that both parties recognize that such segregation will not require WorldGate to maintain a separate area dedicated only to Bailed Property. Aequus shall bear all risk of casualty loss with respect to Bailed Property while such Bailed Property remains in WorldGate’s custody and control.  Aequus shall, at its sole cost and expense, maintain casualty loss insurance for Bailed Property.  Aequus shall not be under any obligation to inspect any of the Bailed Property for conformity or to accept or reject such goods until such time as the Bailed Property are delivered to Aequus or its designees.

3.WorldGate shall use commercially reasonable efforts to deliver to Aequus, within fourteen (14) days after Closing, one of the following forms of agreement executed by the parties thereto, other than Aequus, to supply Purchased Phones to Aequus following a Release Event: (a) an agreement between Aequus and Mototech Inc. whereby Mototech Inc. agrees to supply Purchased Phones to Aequus on substantially the same terms as are in effect between WorldGate and Mototech at the time of such Release Event or (b) an agreement among Aequus, WorldGate and Mototech, whereby Mototech agrees to supply Purchased Phones directly to Aequus under its then-current contract with WorldGate on the terms and conditions specified therein; provided, however, that if WorldGate determines that it will be unable to deliver one of such agreements within such 14-day period, or a reasonable time thereafter, then it shall promptly notify Aequus thereof in writing and shall thereupon use commercially reasonable efforts (including disclosing Manufacturing Documentation to the extent reasonably necessary) to obtain from an alternative manufacturer an agreement to manufacture and supply Purchased Phones to Aequus following a Release Event on substantially the same terms and conditions as are specified in the contract between WorldGate and Mototech in effect on the date hereof.  WorldGate shall keep Aequus informed on a current basis with WorldGate’s efforts to comply with this Section 3 and Aequus shall cooperate with all reasonable requests of WorldGate to facilitate the execution and delivery of any such agreement.  If none of the agreements described in this Section 3 have been delivered to Aequus within six (6) months after the Closing, then Aequus shall have the right, at Aequus sole option, to declare WorldGate in breach of this Agreement.

4.In connection with the transactions contemplated by this Master Agreement and the Related Documents, Aequus agrees to pay WorldGate $5 million (the “Rights Fee”), which shall be paid in accordance with the following schedule:

a.             the sum of $200,000 (the “Closing Payment”) at Closing;

b.             the sum of $1,200,000 (the “Second Payment”), payable within fourteen (14) days following the Closing;

c.             $400,000 per month (the “Monthly Rights Payment”) until the total Rights Fee has been paid.  The first Monthly Rights Payment shall be due on May 1, 2008, and each successive monthly payment shall be due on the first business day of each succeeding month (each, a “Monthly Payment Date”).  Within twenty-four (24) hours following receipt by Aequus of at least $15 million in gross cash proceeds from an additional financing (beyond bridge financing of up to $4.5 million in connection with the Closing Payment and the Second Payment and other immediate cash needs), Aequus shall pay to WorldGate the difference between (i) the

3

Rights Fee and (ii) the total amount of the Closing Payment, the Second Payment and all Monthly Rights Payments made prior to such financing (the “Fee Payments Made”) pursuant to this Master Agreement.  If, however, Aequus receives the additional financing in one or more installments or closings that are individually less than $15 million, then, within twenty-four (24) hours following each such installment or closing, Aequus shall pay the pro rata share of the difference between (i) the Rights Fee and (ii) the total amount of the Fee Payments Made, based upon the amount of financing obtained through such installment or closing in relation to $15 million.

d.Within fourteen (14) days after the Closing, Aequus will (i) establish a bank account controlled by an independent third-party escrow agent from which the Monthly Rights Payments shall be paid to WorldGate.  Aequus shall (subject to terminating its existing receivables financing arrangement, which shall occur as soon as possible but in no event shall be more than sixty (60) days after Closing) require all funds paid to Aequus by NECA (or its successor) to be directly deposited by the paying authority in such account.  Until the Rights Fee has been paid in full, on each Monthly Payment Date all amounts in the account up to $400,000 shall be paid to WorldGate and all amounts in excess of $400,000 (if any) shall be paid to Aequus.  In the event that WorldGate receives less than $400,000 from the escrow agent, it shall promptly notify Aequus of the amount of the deficiency and Aequus shall within three (3) business days thereafter pay to WorldGate the amount of such deficiency.

5.The Parties agree that Justice William J. Kelly of the Supreme Court of Rockland County, New York (the “Court”), shall retain jurisdiction of the Action solely as required to enforce the specific terms of this Section 5.

a.         WorldGate shall not take or omit to take any action which has the effect of disrupting, terminating or otherwise impairing the ability of the ODC or ADC to provide the Pre-Dispute Phone Service to Aequus and its customers absent an express order from Justice Kelly permitting it to do so, provided that this provision shall only apply to intentional acts or omissions or actions or omissions constituting gross negligence but not to actions or omissions constituting ordinary negligence.  Similarly, Aequus shall not take or omit to take any action which has the effect of withholding payment of any portion of the Rights Fee when due absent an express order from Justice Kelly permitting it to do so provided that this provision shall only apply to intentional acts or omissions or actions or omissions constituting gross negligence but not to actions or omissions constituting ordinary negligence.

b.         In the event Aequus violates paragraph (a) of this Section 5, Aequus shall be deemed to have consented to a court order (i) directing Aequus to make such payment within two (2) days and (ii) providing that if the required payment has not been made prior to the expiration of such two (2) day period, (A) Aequus shall be in contempt of court, (B) Aequus shall be fined Fifty Thousand Dollars ($50,000) for each day such contempt is not cured, (C) Aequus shall promptly convey to WorldGate full title and rights to, and ownership of, the ADC and all escrowed materials shall be returned to WorldGate; (D) WorldGate shall be relieved of any further obligation to provide products and services to Aequus or its customers; and (E) all intellectual property and marketing licenses granted to Aequus pursuant to this Master Agreement or any Related Document shall be terminated.

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c.         In the event WorldGate violates paragraph (a) of this Section 5, then WorldGate shall be deemed to have consented to a court order (i) directing WorldGate to fully restore such Phone Service within two (2) days, (ii) providing that if the required restoration has not been made prior to the expiration of such two (2) day period (A) WorldGate shall be in contempt of court, (B) fining WorldGate Fifty Thousand Dollars ($50,000) for each day such contempt is not cured, (C) relieving Aequus of any further obligation to pay any unpaid amount of the Rights Fee; (D) requiring WorldGate to refund all amounts of the Rights Fee previously paid; (E) the Escrow Materials shall be released to Aequus for use solely in providing the Services in the Territory to Customers; and (F) all intellectual property and marketing licenses granted to Aequus pursuant to this Master Agreement or any Related Document shall continue in full force and effect for use solely in providing the Services in the Territory to Customers.

6.a.The Parties shall submit WorldGate’s NRE expense claim of no more than $1,354,039 (representing all fees due for NRE services performed for Aequus by WorldGate through December 31, 2007) to binding arbitration under the Commercial Arbitration Rules for Large, Complex Commercial Disputes of the American Arbitration Association (the “AAA Commercial Rules”) in accordance with the terms of Attachment B to this Master Agreement.  The Parties hereby agree that each Party shall be responsible for all of its own costs (including, without limitation, attorneys’ fees) and for one-half the cost of the arbitration.  The Parties shall initiate the arbitration proceeding within thirty (30) days following the Closing.  The Parties agree that the amount by which the $200,000 paid by Aequus to WorldGate for NRE Services in December 2007 exceeds the Monthly Service Fees for December 2007 and January 2008 shall either be applied against any NRE expenses awarded to WorldGate in the arbitration or shall be paid to Aequus if it prevails in the arbitration (or if the amount of the award to WorldGate is less than such excess, then the difference between such award and such excess shall be paid to Aequus).

b.         The Parties agree that the value of all of the additional Phase 3 work described on Attachment C, which includes all NRE services performed by WorldGate since January 1, 2008, equals $75,000 and that Aequus may apply in full and complete satisfaction for WorldGate’s performance of such additional Phase 3 work the $75,000 credit due to Aequus under Section 1(c) of the Professional Services Agreement (as amended by the Amended and Restated Amendment and Master Contract) for the month following the Effective Date.  WorldGate shall complete such Phase 3 work as promptly as practicable in accordance with the terms of such Professional Services Agreement, as amended.

7.At the Closing, the Parties shall execute the Mutual General Release which is a Related Document.  The Mutual General Release shall waive, release and relinquish each and every claim either Party may have against the other Party, excluding WorldGate’s NRE expense claim referred to in Section 6 above and any claim which may hereafter arise under this Agreement or any Related Document.  The Parties shall execute and file with the Court, within twenty four hours after Closing, all documentation necessary to terminate with prejudice the Action (subject only to the jurisdiction of the Court, as set forth in Section 5 above).

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8.             All notices, requests, demands, consents or waivers and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given immediately upon delivery by hand or by electronic transmission (e.g., email or facsimile with immediate confirmation), one (1) business day after being sent if by nationally recognized overnight courier or, if mailed, then four (4) days after being sent by certified or registered mail, return receipt requested with postage prepaid:

(i)If to WorldGate, to:

WorldGate Communications, Inc.

3190 Tremont Avenue

Trevose, PA 19355

Attention:  Hal Krisbergh, CEO and President

Telecopy:  215-354-1049

Email: hkrisbergh@wgate.com

with a copy to:

Randall Gort, CLO at the same address and telecopy number

Email: rgort@wgate.com

 (ii)          If to AEQUUS, to:

Snap Telecommunications Inc.

1 Blue Hill Plaza, 14th Floor

PO Box 1626

Pearl River, NY  10965

Attention: Richard Schatzberg, President

Telecopy: (973) 227-5400

Email: rschatzberg@aequustechnologies.com

with a copy to:

Pryor Cashman LLP

410 Park Avenue

New York, New York 10022

Attention: Eric M. Hellige, Esq.

Telecopy: (212) 326-0806

Email: ehellige@pryorcashman.com

or, in each case, to such other person or address as any party shall furnish to the other parties in writing.

6

9.             This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior proposals, understandings, and agreements, whether oral or written between the Parties with respect to the subject matter hereof.  No modification, amendment or supplement to this Agreement shall be effective for any purpose unless agreed to in writing and signed by authorized representatives of the Parties.

10.           This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

11.           No failure to exercise, and no delay in exercising, on the part of either Party, any right, power or privilege hereunder will operate as a waiver thereof, nor will any Party’s exercise of any right, power or privilege hereunder preclude further exercise of the same right or the exercise of any other right hereunder.

12.           If any part of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby and shall be enforced to the maximum extent permitted by applicable law.  If any remedy set forth in this Agreement is determined to have failed of its essential purpose, then all other provisions of this Agreement, including the limitations of liability and exclusion of damages, shall remain in full force and effect.

13.           Either Party shall be excused from performance and shall not be liable for any delay, in whole or in part, caused by the occurrence of any contingency beyond the reasonable control either of the excused Party or its subcontractors or suppliers.  These contingencies include, but are not limited to, war, sabotage, insurrection, riot or other act of civil disobedience, act of public enemy, failure or delay in transportation, act of any government or any agency or subdivision thereof affecting the terms hereof, accident, fire, explosion, flood, severe weather or other act of God, or shortage of labor or fuel or raw materials.

14.           The Parties acknowledge and agree that this Agreement shall be governed by the laws of the Commonwealth of Pennsylvania as to all matters including, but not limited to, matters of validity, construction, effect, performance and liability, without consideration of conflicts of laws provisions contained therein.  In the event of any dispute between the Parties, (a) if suit shall be brought by Aequus, it shall be brought either in the United States District Court for the Eastern District of Pennsylvania or any state court of the Commonwealth of Pennsylvania and (b) if suit shall be brought by WorldGate, it shall be brought in the either in the United States District Court for the Southern District of New York or any state court of the State of New York.  Each of the Parties waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

15.           This Agreement may be executed simultaneously in two or more original or facsimile counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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16.           A breach or other default under this Agreement by either Party shall not constitute a breach or default under any other agreement between the Parties.

17.           Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or corporation other than the Parties hereto and their respective successors or permitted assigns any rights or remedies under or by reason of this Agreement.

18.           Unless otherwise expressly provided in this Agreement, neither Party may assign its rights (other than the right to receive payments) or delegate its duties and obligations under this Agreement without the prior written consent of the other Party, which will not be unreasonably withheld or delayed; provided, however, that either Party may assign this Agreement, without the need to obtain consent of the other Party, to an Affiliate of such Party or to a successor-in-interest to substantially all of the business of that Party to which this Agreement relates by providing written notice to the other Party of such assignee’s agreement to be bound by the terms of this Agreement and to assume all of the rights and obligations of the assigning Party set forth in this Agreement; provided, however, that in no event shall either Party assign this Agreement to an Affiliate or successor who is a competitor of the other Party.  Any assignment made in violation of the foregoing provisions shall be deemed null and void and of no force or effect.

19.           WorldGate and Aequus have all participated in the negotiation and drafting of this Agreement and have each been represented throughout to their satisfaction by legal counsel of their choosing.  In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

20.           Section headings are provided for convenience of reference and do not constitute part of this Agreement.  Any references to a particular section of this Agreement shall be deemed to include reference to any and all subsections thereof

21.           The provisions of Sections that, by their nature or as explicitly stated, are to survive termination of this Agreement shall survive termination hereof.

22.           Where the context or construction requires, all words applied in the plural shall be deemed to have been used in the singular, and vice versa; the masculine shall include the feminine and neuter, and vice versa; and the present tense shall include the past and future tense, and vice versa.

23.           All references to days in this Agreement shall be deemed to refer to calendar days, unless otherwise specified.

24.           The Parties will undertake to use all reasonable efforts to present each other in a positive light and to refrain from characterizations or statements that are disparaging of the other.

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25.           Nothing in this Master Agreement or any other Related Document shall be deemed an admission of liability or wrongdoing by any of the Parties and neither this Master Agreement nor any Related Document shall be deemed or construed to be an admission or evidence of any violation of any law or contract, or of any liability or wrongdoing by any of the Parties.

26.           a.             The Parties agree that, notwithstanding anything to the contrary in this Master Agreement or any Related Document, and except as provided in paragraph (b) to this Section 26, the exclusive means for resolving any dispute which arises between the Parties prior to the first anniversary of the Effective Date with respect to or in connection with this Master Agreement or any Related Document shall be the submission of such dispute to arbitration in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association. The parties shall endeavor to select a mutually acceptable arbitrator knowledgeable about issues relating to the subject matter of the agreement in dispute. In the event the parties are unable to agree to such a selection, each party will select an arbitrator and the arbitrators in turn shall select a third arbitrator. The arbitration shall take place at a location that is reasonably centrally located between the parties, or otherwise mutually agreed upon by the parties.  All documents, materials, and information in the possession of each party that are in any way relevant to the claim(s) or dispute(s) shall be made available to the other party for review and copying no later than thirty (30) days after the notice of arbitration is served.  The arbitrator shall have the power to issue mandatory orders and restraining orders in connection with the arbitration. The award rendered by the arbitrator shall be final and binding on the parties, and judgment may be entered thereon in any court having jurisdiction. This agreement to arbitrate shall be specifically enforceable under prevailing arbitration law. During the continuance of any arbitration proceeding, the parties shall continue to perform their respective obligations under the agreement in dispute.

b.             Nothing set forth in paragraph (a) of this Section 26 shall apply to disputes (a) which are covered by Section 5 of this Agreement, (b) which otherwise relate to disputes regarding Aequus’s ability to get or provide the Services or (c) which are based on any breach of the parties’ exclusivity rights and obligations under Section 1(a) of the Reseller Agreement, as amended by the Revised and Restated Amendment and Master Contract which is a Related Document.

IN WITNESS WHEREOF, the authorized representatives of the parties hereto have duly executed this amendment on behalf of the parties on the date first written above.

Hal Krisbergh	Richard Schatzberg
President & CEO	CEO
WorldGate Communications, Inc.	Aequus Technologies Corp.

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Hal Krisbergh	Richard Schatzberg
President & CEO	CEO
OJO Service LLC	Snap Telecommunication Inc.

Attachments and Exhibits

Attachment A – Additional Purchases – Payment Terms

Attachment B – Arbitration Procedures

Attachment C – Phase 3 Agreed Work

Exhibit X – Certain Definitions

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ATTACHMENT A

PROMISSORY NOTE

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ATTACHMENT B

ARBITRATION PROCEDURES

1.             Pursuant to Section 6 of the Master Agreement, the dispute regarding whether or not Aequus is obligated to pay to WorldGate approximately $1.35M in NRE expenses (the “Dispute”) shall be submitted to binding arbitration in accordance with the following:

1.1           For the purpose of such arbitration, there shall be a board of arbitration (the “Board of Arbitration”) consisting of three arbitrators.  Each of Assignor and Assignee shall select one (1) member and the third member shall be selected by mutual agreement of the other members, or if the other members fail to reach agreement on a third member within ten (10) days after their selection, such third member shall thereafter be selected by the American Arbitration Association (“AAA”) upon application made to it for such purpose. The place of arbitration shall be in Philadelphia, PA or such other location as the parties may agree. All arbitration proceedings shall be conducted under and pursuant to the Commercial Arbitration Rules for Large, Complex Commercial Disputes of the AAA (the “AAA Commercial Rules”).

1.2           The arbitrators shall decide the Dispute in accordance with the governing law specified in Section 14 of the Master Agreement.  Judgment upon any award rendered hereunder may be entered in any court of competent jurisdiction, and/or application may be made to any such court for a judicial acceptance of the award and/or an order of enforcement, as the case may be.

1.3           Each party shall cooperate in good faith to expedite and to reduce the procedural costs associated with (each to the maximum extent practicable) the conduct of any arbitration proceedings commenced under this Agreement.

1.4           The cost of each arbitration proceeding, including without limitation the arbitrators’ compensation and expenses, hearing room charges, court reporter transcript charges, etc., shall be borne by the parties in such proportions as shall be determined by the arbitrators.

1.5           Subject to the control of and enforcement by the arbitrators, the parties shall have the right to conduct and enforce pre-hearing discovery in accordance with the then current Federal Rules of Civil Procedure.  The arbitrators shall permit and facilitate such other discovery as they may determine is appropriate under the circumstances, taking into account the needs of the parties and the desirability of making discovery expeditious and cost effective.  The arbitrators shall decide discovery disputes.  In addition to any powers provided under the AAA Commercial Rules, the arbitrators are empowered:

(a)to issue subpoenas to compel pre-hearing document or deposition discovery;

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(b)to require the deposition of not more than three individuals from each side

(c)to enforce the discovery rights and obligations of the parties; and

(d)to otherwise control the scheduling and conduct of the proceedings.

Notwithstanding any foregoing provisions to the contrary, the arbitrators shall have the power and authority to, and to the fullest extent practicable shall, abbreviate arbitration discovery in a manner that is fair to all parties in order to expedite the arbitration proceeding and render a final decision within six months after the pre-hearing conference.

1.6           Within thirty (30) days after filing of notice of demand for binding arbitration, the arbitrators shall hold a pre-hearing conference to establish schedules for completion of discovery, for exchange of exhibit and witness lists, for arbitration briefs, for the hearing, and to decide procedural matters and all other questions that may be presented.

1.7           The hearing shall be conducted to preserve its privacy and to allow reasonable procedural due process.  Rules of evidence need not be strictly followed, and the hearing shall be streamlined as follows:

(a)Documents shall be self-authenticating, subject to valid objection by the opposing party;

(b)Expert reports, witness biographies, depositions, and affidavits may be utilized, subject to the opponent’s right of a live cross-examination of the witness in person;

(c)Charts, graphs, and summaries may be utilized to present voluminous data, provided that the underlying data was made available to the opposing party thirty (30) days prior to the hearing, and that the preparer of each chart, graph, or summary is available for explanation and live cross-examination in person;

(d)The hearing should be held on consecutive business days without interruption to the maximum extent practicable; and

(e)The arbitrators shall establish all other procedural rules for the conduct of the arbitration in accordance with the AAA Commercial Rules.

.

1.8           This arbitration provision shall be governed by, and all rights and obligations specifically enforceable under and pursuant to, the Federal Arbitration Act (9 U.S.C. Section 1 et seq.) and the laws of the Commonwealth of Pennsylvania shall be applied, without

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reference to the choice of law principles thereof, in resolving matters submitted to such arbitration.

1.9           No arbitration shall include, by consolidation, joinder, or in any other manner, any additional person not a party to this Agreement (other than affiliates of any such party, which affiliates may be included in the arbitration), except by written consent of the parties hereto containing a specific reference to this Agreement.

1.10  The arbitrators shall be required to render their final decision within thirty (30) days after the pre-hearing conference.  The arbitrators are not empowered to render an award of general compensatory damages and equitable relief (including, without limitation, injunctive relief), but are not empowered to award punitive or presumptive damages.  The award rendered by the arbitrators (1) shall be final and (2) shall not be subject to vacation, modification or appeal, except in the event of fraud or gross misconduct on the part of the arbitrators.

1.11  The parties hereto will maintain the substance of any proceedings hereunder in confidence and make disclosures to others only to the extent necessary to properly conduct the proceedings or as required by law.

2.             Any award made by the arbitration tribunal shall be final and binding on each of the parties that were parties to the Dispute and their respective successors and permitted assigns. Except in the event of fraud or gross misconduct on the part of the arbitrators, the parties expressly agree to waive the applicability of any laws and regulations that would otherwise give the right to appeal the decisions of the arbitration tribunal so that there shall be no appeal to any court of law from the award of the arbitration tribunal, and a party shall not challenge or resist the enforcement action taken by any other party in whose favor an award of the arbitration tribunal was given.

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ATTACHMENT C

PHASE 3 – AGREED WORK

·Ojo passes the hearing person’s number to SNAP.

·Secure Remote Assist (TSR support tool)

·Ojo employs bandwidth adaptation techniques for unencrypted H.263 calls

·Ojo Phonebook entry “Name” input field is already selected when first entering a new entry

·Ojo presents “Mailbox is Full” greeting to a caller

·Ojo has a new Audio Mute configuration option

·The Snap!VRS CSR phone number (711-7627) is preloaded in the phonebook

·Ojo detects the hardware model to appropriately display TALK or CALL in the on-screen hints and text

·When a user enters a number that takes them to the dialer, we now place that number into each input buffer, so the number is retained when the user changes the type of call (Ojo, VRS, IP dialer).

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EXHIBIT X

CERTAIN DEFINITIONS

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EX-10.16

Exhibit 10.16

SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”) is dated as of September 24, 2007, by and between Antonio Tomasello., a individual (“Investor”) and WorldGate Communications, Inc., a Delaware corporation (the “Company” and together with the Investor, the “Parties” or a “Party” as the case may be).

RECITALS

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), the Company desires to issue and sell to the Investor, and the Investor desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

WHEREAS, the Company and the Investor are executing and delivering this Agreement in reliance upon an exemption from securities registration pursuant to Section 4(2) and/or Rule 506 of Regulation D (“Regulation D”) as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”);

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, as provided herein, and the Investor shall purchase One Million Dollars ($1,000,000) (the “Investment Amount”) of the Company’s common stock, par value $0.01 (the “Common Stock”), at a price per share of Common Stock equal to $0.39. (the “Purchase Price”);

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering an Investor Registration Rights Agreement (in the form attached hereto as Exhibit A, the “Investor Registration Rights Agreement”,) one or more Warrant Agreements (each in the form attached hereto as Exhibit B, the “Warrant Agreements”) and together with this Agreement and any other contemporaneous written agreement executed by the Parties, the “Transaction Documents”) pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated there under, and applicable state securities laws;

NOW THEREFORE, in consideration of the mutual agreements hereinafter set forth, and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby covenant, promise, agree, represent and warrant as follows:

ARTICLE 1

PURCHASE AND SALE OF SHARES

1.1   Incorporation of Recitals.  The recitals to this Agreement set forth above are hereby incorporated by reference into this Agreement

1.2  Purchase of Shares.  Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, Investor agrees to purchase at each Closing and the Company agrees to sell and issue to Investor at Closing, Common Stock in amounts corresponding to the Investment Amount, divided by the Purchase Price, or 2,564,102 shares (the “Shares”).

1.3  Closing Date.  The closing (the “Closing”) of the purchase and sale of the Common Stock shall take place at 4:00 p.m. Eastern Daylight Time on September 18, 2007, subject to notification of satisfaction of the conditions to the closing set forth herein (or such later date as is mutually agreed to by the Company and the Investor) (the “Closing Date”).  The Closing shall occur on the respective Closing Dates at the offices of Drinker Biddle & Reath LLP, 1000 Westlakes Drive, Berwyn, PA (or such other place as is mutually agreed to by the Company and the Investor(s)).

1.4  Closing Deliveries.  (a) At the Closing, the Company shall deliver or cause to be delivered to each Investor the following (the “Company Deliverables”):

irrevocable instructions addressed to the Company’s transfer agent instructing it to issue a certificate or to make an appropriate book entry evidencing the Shares, registered in the name of such Investor; and

the Warrant Agreement with respect to Investor’s Investment Amount, duly executed by the Company;

the Registration Rights Agreement duly executed by the Company.

(b)  At the Closing, each Investor shall deliver or cause to be delivered to the Company the following (the “Investor Deliverables”):

the Investment Amount in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; and

the Registration Rights Agreement, duly executed by such Investor.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

2.1  Status of Investor.

(a)   Investor has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Shares.

(b)   Investor is an “accredited investor” as defined in Rule 501(a) under the Securities Act.  Such Investor is not a registered broker-dealer under Section 15 of the Exchange Act.  .

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(c)  Investor is acquiring the Shares as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Shares or any part thereof, without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Shares in compliance with applicable federal and state securities laws.  Subject to the immediately preceding sentence, nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Shares for any period of time.  Such Investor is acquiring the Shares hereunder in the ordinary course of its business.  Such Investor does not have any agreement or understanding, directly or indirectly, with any person to distribute any of the Shares.

(d)  Investor has not directly or indirectly, nor has any person acting on behalf of or pursuant to any understanding with such Investor, engaged in any transactions in the securities of the Company (including, without limitation, any short sales as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers (“Short Sales”) involving the Company’s securities) since the earlier to occur of (1) the time that such Investor was first contacted by the Company or any other person regarding an investment in the Company and (2) the 30th day prior to the date of this Agreement.  Such Investor covenants that neither it nor any person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

2.2  Access to Information.  Investor has been furnished with such materials and has been given access to such information relating to the Company as he or his representative has requested and has been afforded the opportunity to ask questions regarding the Company and the Shares, all as Investor has found necessary to make an informed decision regarding the Investor’s entering into this Agreement.

2.3  Understanding of Risks Associated with the Acquisition of the Shares.  Investor understands that an investment in the Shares is speculative and subject to numerous risks, including but not limited to the risks set forth in the Company’s filings with the U.S. Securities and Exchange Commission under the heading “Risk Factors.”

2.4  Understanding of Nature of Securities.  Investor understands that:

(a)  the Shares have not been registered by the Company under the Act or any State Act, and the Company does not intend to register the Shares for sale under the Act or any State Act in reliance on the exemption from registration available under the Act and the Missouri Securities Act.

(b)  the Shares are “restricted securities” as that term is defined in Rule 144 under the Act.

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(c) the certificates, if any, evidencing the Shares shall include provisions substantially in the form of the legend set forth below, which Investor has read, understands and agrees to be bound by:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER APPLICABLE STATE SECURITIES ACTS (THE “STATE ACTS”) NOR IS SUCH REGISTRATION CONTEMPLATED.  SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE ACT OR THE STATE ACTS, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE BOARD OF DIRECTORS OF THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE BOARD OF DIRECTORS OF THE COMPANY OF EVIDENCE SATISFACTORY TO THE BOARD TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE ACT OR STATE ACTS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.

(d) the Company may, from time to time, make stop transfer notations in the Company’s records to ensure compliance with the Act and any applicable State Acts.

(e) Investor agrees, prior to any transfer of the Shares, to give written notice to the Company expressing his desire to effect such transfer and describing briefly the proposed transfer.  Upon receiving such notice, the Company shall present copies thereof to counsel for the Company and the following provisions shall apply:

(i)            If, in the opinion of such counsel, the proposed transfer of such Shares may be effected without registration of such Shares under the Act and the State Acts, the Company shall promptly thereafter notify the person desiring to transfer such Shares, whereupon such person shall be entitled to transfer such Shares, all in accordance with the terms of the notice delivered by such person to the Company and upon such further terms and conditions as shall be required by the Company to ensure compliance with the Act and the State Acts.

(ii)           If, in the opinion of such counsel, the proposed transfer of such Shares may not be effected without registration of such Shares under the Act and the State Acts, a copy of such opinion shall be promptly delivered to the person who has proposed such transfer, and such proposed transfer shall not be made unless such registration is then in effect.

2.5   Investment Intent.  Investor represents and warrants that:

(a)     Investor is acquiring the Shares for the Investor’s own account and not on behalf of any other person.

(b)    Investor is the sole party in interest in his investment in the Shares and is acquiring the Shares for investment and not for distribution or with the intent to divide Investor’s participation with others or of selling, assigning, transferring or otherwise disposing of the Shares.

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2.6  Further Assurances.  Investor will execute and deliver to the Company any document, or do any other act or thing, which the Company may reasonably request in connection with the acquisition of the Shares.

2.7  Non-disclosure.  Investor has not distributed any written materials furnished to Investor by the Company to anyone other than the Investor’s professional advisors.

2.8  Ability to Bear Economic Risk.  Investor has adequate means of providing for its current needs and possible future contingencies, and has no need, and anticipates no need in the foreseeable future, to sell the Shares which it is acquiring pursuant to this Agreement. Investor is able to bear the economic risks related to the acquisition of the Shares and, consequently, without limiting the generality of the foregoing, is able to hold the Shares for an indefinite period of time and has sufficient net worth to sustain a loss of its interest in the Company in the event such loss should occur.  Investor has no need for liquidity with respect to his Shares.

2.9  Tax Matters.  Investor has reviewed with Investor’s own tax advisors the federal, state, local and foreign tax consequences in connection with the acquisition of the Shares (including any tax consequences that may result under recently enacted tax legislation).  Investor is relying solely on such advisors and not on any statements or representations of the Company or any of its agents and understands that Investor (and not the Company) shall be responsible for Investor’s own tax liability that may arise as a result of this transaction.

2.10  Accuracy of Representations.  All of the representations and information provided herein and any additional information that Investor has furnished to the Company or its agents with respect to Investor’s financial position and business experience is accurate and complete as of the date of this Subscription Agreement.  If there should be any material adverse change in any such representation or information, Investor will immediately furnish accurate and complete information concerning any such material change to the Company.

2.11  Piggyback Registration Rights.  If at any time during the twelve month period following the Closing Date the Company proposes to register any Common Stock under the Securities Act (other than an underwritten public offering or a registration on Form S-8 or S-4, or any successor forms, relating to Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or in connection with a direct or indirect acquisition by the Company of another entity), whether or not for sale for its own account, the Company shall each such time give prompt notice at least ten (10) days prior to the anticipated filing date of the registration statement relating to such registration to Investor, which notice shall offer Investor the opportunity to include in such registration statement the number of Shares such Investor may request. Upon the request of Investor made within five (5) days after the receipt of notice from the Company (which request shall specify the number of Shares intended to be registered by Investor), the Company shall use all reasonable efforts to effect the registration under the Act of all Shares that the Company has been so requested to register by Investor, to the extent requisite to permit the disposition of the Shares so to be registered, provided that if, at any time after giving notice of its intention to register any Common Stock pursuant to this Paragraph 2.11 and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give notice to Investor and,

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thereupon, shall be relieved of its obligation to register any Shares in connection with such registration. The obligations under this Section 2.11 shall expire when the Shares are saleable by Investor pursuant to Rule 144 without limitation as to volume.

ARTICLE 3

INDEMNIFICATION

Investor recognizes that the Company’s entering into of this Agreement will be based to a material extent upon Investor’s representations and warranties set forth herein and Investor agrees to indemnify and hold harmless the Company and its officers, directors and employees from and against any and all loss, damages, liabilities or expenses including reasonable attorneys’ fees which any such person may incur by reason of or in connection with any misrepresentation made by Investor in this Agreement or otherwise, any breach by Investor of its agreements with the Company or any sale or distribution of any Shares by Investor in violation of the Act or State Acts.  All representations and warranties of Investor contained in this Agreement shall survive this Agreement.

ARTICLE 4

 MISCELLANEOUS PROVISIONS

4.1  Captions and Headings.  The Article and Section headings throughout this Agreement are for convenience of reference only and shall in no way be deemed to define, limit, or add to any provision of this Agreement.

4.2  Entire Agreement; Amendment.  This Agreement states the entire agreement and understanding of the parties and shall supersede all prior agreements and understandings.  No amendment of the Agreement shall be made without the express written consent of the parties.

4.3  Severability.  The invalidity or unenforceability of any particular provision of this Agreement shall not affect any other provision hereof, which shall be construed in all respects as if such invalid or unenforceable provision were omitted.

4.4  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without reference to principles of conflicts of laws.

4.5  Notices.  All notices, requests, demands, consents, and other communications hereunder shall be transmitted in writing and shall be deemed to have been duly given when hand delivered or sent by certified mail, postage prepaid, with return receipt requested, addressed to the parties as follows: to the Company at 3190 Tremont Avenue, Trevose, PA, Attention: General Counsel; and to the Investor: at                                                              .  Any party may change its address for purposes of this Section by giving notice as provided herein.

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto as of the date first above written.

COMPANY:

WORLDGATE COMMUNICATIONS, INC.

INVESTOR:

ANTONIO TOMASELLO

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EX-21

Exhibit 21

Subsidiaries of WorldGate Communications, Inc.

WorldGate Service, Inc., a Delaware corporation

WorldGate Finance, Inc., a Delaware corporation

WorldGate Acquisition Corp., a Delaware corporation

Ojo Services LLC, a Delaware limited liability company

Ojo Video Phones LLC, a Delaware limited liability company

EX-23.1

Exhibit 23.1

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT

We consent to the incorporation by reference in the Registration Statements of WorldGate Communications, Inc. (the “Company”) on Form S-8, File Nos: 333-78943, 333-49612, 333-58346 and 333-62810, and on S-3, File No. 333-143323 of our report dated April 16, 2008, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audits of the consolidated financial statements of WorldGate Communications, Inc. as of December 31, 2007 and 2006 and for the years ended December 31, 2007 and 2006, which report is included in this Annual Report on Form 10-K of WorldGate Communications, Inc. for the year ended December 31, 2007.

/s/ Marcum & Kliegman LLP

Marcum & Kliegman LLP

Melville, New York

April 16, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Hal M. Krisbergh, certify that:

1.I have reviewed this annual report on Form 10-K of WorldGate Communications, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals.

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:	April 16, 2008	/s/ HAL M. KRISBERGH
		Hal M. Krisbergh
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Joel Boyarski, certify that:

1.I have reviewed this annual report on Form 10-K of WorldGate Communications, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals.

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:	April 16, 2008	/s/ JOEL BOYARSKI
		Joel Boyarski
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of Sarbanes-Oxley Act of 2002

I, Hal M. Krisbergh, the Principal Executive Officer of WorldGate Communications, Inc., hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-K of WorldGate Communications, Inc., for the annual period ended December 31, 2007, which this certification accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and information contained in the December 31, 2007 Form 10-K fairly presents, in all material respects, the financial condition and results of operations of WorldGate Communications, Inc.

A signed original of this written statement required by Section 906 has been provided to WorldGate and will be retained by WorldGate and furnished to the Securities and Exchange Commission or its staff upon request.

Dated April 16, 2008	/s/ HAL M. KRISBERGH
	Hal M. Krisbergh
	Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of Sarbanes-Oxley Act of 2002

I, Joel Boyarski, the Principal Financial Officer of WorldGate Communications, Inc., hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-K of WorldGate Communications, Inc., for the annual period ended December 31, 2007, which this certification accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and information contained in the December 31, 2007 Form 10-K fairly presents, in all material respects, the financial condition and results of operations of WorldGate Communications, Inc.

A signed original of this written statement required by Section 906 has been provided to WorldGate and will be retained by WorldGate and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: April 16, 2008	/s/ JOEL BOYARSKI
	Joel Boyarski
	Chief Financial Officer
	(Principal Financial and Accounting
	Officer)