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WorldGate ready for auction

by Hayley Kaplan | Published July 30, 2012 at 9:52 AM

WorldGate Communications Inc. will sell some of its assets at an online public auction July 31.

Judge Christopher S. Sontchi of the U.S. Bankruptcy Court for the District of Delaware in Wilmington signed an order July 24 approving Chapter 7 trustee Charles M. Forman of Forman Holt Eliades Ravin & Youngman LLC's motion to sell the Trevose, Pa., company's tangible assets free and clear of liens.

According to a July 10 sale motion, bids at the online public auction are for the former digital videophone designer and retailer's tangible assets, consisting of Ojo-branded equipment. Forman wants to liquidate the equipment at the earliest possible date to maximize the value of the debtor's estate.

According to Angela Sheffler Abreu of Forman Holt, counsel to Forman, Randy L. Fridkis Auction LLC's auctionsaleinfo.com will conduct the July 31 auction.

Sontchi ordered the debtor to file notice of the auction within three days of the sale order's entry, and ordered the debtor to file an itemized list of the sale results within 21 days of the auction's completion.

Secured lender and equity holder WGI Investor LLC allegedly has a lien on the assets being sold, which is being disputed. WGI holds an aggregate of 202.46 million shares of WorldGate's common stock, good for a 63% stake, according to the company's most recent Securities and Exchange Commission filing, on Nov. 9.

On July 9, Sontchi approved Forman's motion to retain Icap Patent Brokerage LLC to market and sell WorldGate's intellectual property, specifically four patents the debtor owns relating to its videophone technology. Court documents said retaining Icap was necessary to maximize the patents' value. Abreu said the trustee is still soliciting offers for them.

Founded in 1996, WorldGate was a leading provider of digital voice and videophone services, its website said. The company designed and developed digital videophones, which featured real-time, two-way video. It went public in 1999.

WorldGate's Ojo products were featured on "The View," "The Ellen DeGeneres Show" and "The Office" and were used by former President George W. Bush, according to the company's website.

The Deal Pipeline issued a distress warning on WorldGate after Marcum & Kliegman LLP (now Marcum LLP) pointed on March 25, 2009, to recurring losses from operations, an accumulated deficit of $271 million, a stockholders' deficiency of $8.2 million and a working-capital deficit of $8.5 million as of Dec. 31, 2008.

According to the Nov. 9 SEC filing, the debtor lacked sufficient cash flow from its operations to service its debts. As a result, it said there was substantial doubt about its ability to continue as a going concern.

The company said it was exploring "all strategic alternatives available to it," including a sale or merger, recapitalization, partnership, liquidation or filing for Chapter 11 protection.

WGI was owed $3.02 million on an October 2009 note as of Nov. 10. As of the same date, WorldGate also owed one of its suppliers approximately $7.9 million for outstanding payables representing previously shipped merchandise.

The debtor said it did not believe it would be able to pay its scheduled interest and principal payments on the WGI loan and security agreement as they became due, adding that it could not avoid defaulting on the loan and that WGI should therefore accelerate the payments on it.

WorldGate blamed its lack of cash on the reduction of videophone orders from ACN Digital Phone Service LLC, a subsidiary of ACN Inc.

The debtor had discontinued digital voice and video communication services to its customers as part of cost-cutting efforts. In addition, it had reduced its workforce to three employees and one consultant.

The company ultimately submitted a Chapter 7 petition for itself and four affiliates, including Ojo Video Phones LLC, on March 30. The cases are jointly administered.

WorldGate reported assets of $5.62 million and liabilities of $11.3 million as of Sept. 30, 2011. It listed $100,000 to $500,000 in assets and $10 million to $50 million in liabilities in its petition.

Christopher Martin Winter of Duane Morris LLP is debtor counsel.

Katharine L. Mayer of McCarter & English LLP also represents Forman.

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