1030058--3/31/2006--WORLDGATE_COMMUNICATIONS

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{stock, price, share}

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{control, financial, internal}

{capital, credit, financial}

{debt, indebtedness, cash}

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{acquisition, growth, future}

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Our ITV Business has accounted for most of our revenues to date; we cannot reliably project our continued revenues, and we expect to incur significant losses for an indefinite period of time. Our auditors have expressed substantial doubt about our company s ability to continue as a going concern. 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. 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 operating history. We will incur increased risks, costs and expenses for marketing and distributing our products, for collection and accounts receivable issues, and for inventory as the result of ending our development and distribution agreement with General Instrument. Our video phone technology and products remain subject to significant uncertainty. 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 will 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. With the end of our development and distribution agreement with General Instrument, we will no longer be able to use the Motorola brand in association with our products, or General Instrument s other resources in marketing and distributing our products. We may not be able to meet our product development objectives or market expectations. We may not be able to achieve competitive pricing in the marketplace. 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. We may not be successful in developing or maintaining strong distribution channels for our video phone products. We may not be able to compete successfully in the highly competitive and rapidly evolving HSD communications market. We may not be able to protect intellectual property of our video phone business against third-party infringements or claims of infringement. Legal and regulatory developments could have adverse consequences for our business. The use of the high speed data infrastructure as a commercial marketplace is at an early stage of development. We may not have sufficient working capital to fund our continuing video phone business, and we may be unable to obtain additional capital. If we obtain additional financing, you may suffer significant dilution. NASDAQ Listing Requirements may limit our ability to raise additional capital. In the event that our common stock is delisted from NASDAQ SmallCap Market, it may be subject to the requirements of the rules relating to penny stocks. Our stock price is volatile. Prior offerings of our common stock may have an adverse impact on the market value of our stock. 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. Our board of directors right to authorize additional shares of preferred stock could adversely impact the rights of holders of our common stock.

Full 10-K form ▸

1030058--3/31/2006--WORLDGATE_COMMUNICATIONS_INC